Choosing Your Lender
Choosing a student loan lender is a major decision. It is a choice that may stay with you for 30 years. That is the maximum time period a student under certain repayments plans has to repay their student loans. It is the same time period in repayment for many commercial home loans.
Taking the time to review, question, and interview a potential lender is important. The Financial Aid Office can not recommend a lender as the perfect match for you. Inquiry with the lender is the best and most accurate method to know and understand the terms and conditions a lender offers.
What is best for one student will not be the best for others. We can never fully understand your individual financial situation(s) and what your educational and career plans are. The responsibility as well as the decision fall to you the student loan consumer.
Some of the major considerations involved in choosing a lender include cost, flexibility and customer service.
Although all Federal education loans have the same interest rates and fees, some lenders offer prompt payment discounts that can reduce the cost of the loan. These repayment incentives, also referred to as borrower benefits, include interest rate reductions, full or partial origination fee rebates, and principal balance reductions. They reward the student for using automatic direct debit of monthly payments and/or for making on-time monthly payments.
Qualifying For Borrower Benefits
It is important to realize that if you are late on a single monthly loan payment you will no longer qualify for the prompt payment discounts. Do not overestimate your ability to make all the payments on time. Ask the lender what percentage of their borrowers qualifies for each of the borrower benefit programs. Less than 15% of borrowers succeed in obtaining any discount other than the 0.25% interest rate reduction for Electronic Funds Transfer (EFT). (Even students who sign up for EFT occasionally miss a payment by having insufficient funds in their account. Students are, however, more likely to succeed in qualifying for the discounts if they sign up to use EFT to automatically debit their bank account for the monthly payments.) The actual success rate is probably closer to 10%.
Borrower Benefits Over Time
A 2% interest rate reduction after 48 months of on-time payments may sound like a lot, but it is the equivalent of a less than 0.7% point reduction in the interest rate over the ten-year lifetime of a regular student loan. (Most of the other different interest rate discounts offered by various lenders yield a similar financial benefit, typically yielding an equivalent interest rate reduction that varies by less than 0.05% points from this figure.) Even after adding in the 0.25% point reduction for signing up for EFT, the savings is still less than a 1% point interest rate reduction. Since very few students qualify, the cost to the lender of offering student loan discounts is the equivalent of only about a 0.1% point reduction in the interest rate.
What Is The APR?
The Annual Percentage Rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. If a lender indicates their APR is lower then another ask what factors were considered in calculating the APR they have presented to you. Have they taken into consideration Borrower benefits you are unlikely to get?
Many lenders sell their student loans to a secondary market when the loans enter repayment. Many lenders also use a third-party service to manage the processing of payments and customer service requests. If you consolidate your loans, you are effectively paying off your old loans and replacing it with a combined loan from a single new lender. As a result, the company that services your student loan might not be the same as the bank that originally issued the loan.
Other common customer service considerations include the availability of an online interface to the account information and the availability of combined billing for Federal and private education loans.
Some Important Questions to Ask Your Lender
What benefits are offered? What percentage of students qualifies for benefits?- How often is loan interest capitalized? If so, when?
- Is the customer service good? Call the lender and ask questions. What are the customer service hours? Can I access information over the internet? How long did I wait for my call to be answered?
- Is extra effort put forth to help students avoid default?
- Does the lender use a servicer?
- Does you lender sell their student loans to the secondary lender market?
- Are the origination fees discounted?
- Can the benefits offered change? How? When?
- What are the terms and conditions for hardship deferments?
- Are the benefits in writing? If so where can I find them?
- How long has the lender been in the student loan industry?
- How was the APR calculated?
- If I lose my benefits is there a “restoration of benefits” program?
- Use common sense when evaluating a potential student loan lender. If something sounds too good to be true, It usually is.
Questions and Answers
- Why did SUNY Downstate make a selected lender list?
- We created a lender list to assist students with the decision making process. There are thousands of lenders to choose from. The process can be time consuming and tedious. A lender list just highlights some of the institutions we have had experience with and/or believe their loan programs are suited for our students. The final choice is yours.
- What criteria are used to create the Selected Lender list?
- A committee of financial aid and non-financial aid staff will meet annually to review current and future lenders for the list. We evaluate how the lenders have performed. We look for lenders that have the best benefits; customer service; maintain a positive relationship with our school; good alternative and residency loans; and have minimal processing issues and/or complaints. We add and subtract as the SUNY Downstate Policy and Procedures manual dictates criteria for our Selected Lender List. A detailed copy of the procedures is available upon request. We try to establish a list of lenders that will appeal to our student population.
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Does SUNY Downstate receive any incentive/s from the various lenders?
- The Financial Aid Office, as well as other offices of this institution, is prohibited by New York State law from accepting incentives. We do not have any agreements with lenders. No member of the Financial Aid Staff is a member of any lender board and/or committee.
- May I choose a lender that is not on your preferred lender list?
- Yes, you may choose any lender that participates in the Stafford Loan Program. There is no penalty if you choose a lender not on our list. If you choose a lender not on our list we ask you clearly indicate on the loan acceptance form the name of the lender and an address/phone for the lender so we may ascertain the correct school/guarantor code for that lender. We are not a Direct Lending institution, so you may not choose to remain or select Direct Lending.
- Where can I find out more about the lenders and compare terms and offers?
- We have given you the lender(s) web site and telephone numbers to contact them directly. You are the consumer and should inquire directly with the various lenders. In doing so you will take the first steps to see what the lender is like in customer service and information. Then you can make the decision that is best for you.
