When you take out a loan, you're entering into a long term relationship with another party: the lender. Just as lenders check out their borrowers before approving a loan, you want to check out a lender's credentials before even applying for a loan.
Where to Start Looking for College Loan Lenders
If you have direct federal loans only then you don't have to worry about the lender evaluation process because the Department of Education is going to be your lender. However, if you are taking out a federal college student loan through the FFEL Program or a private student loan, it's up to you to decide who the lender will be.
For more on that subject visit our federal student loans article.
Good student loan lenders can be found through:
Use your future college's preferred lender list for a solid starting point. Not only will this assure you that the lender is qualified to handle FFEL federal loans, but the school has already done the legwork to check into the lender's credentials and found them to be sound. Also use trusted friends and relatives as a source for finding a lender. There's nothing better than firsthand experience to measure up the quality of a lender.
Now that you know where to begin finding lenders to evaluate, let's move on to what factors you should be evaluating.
Evaluate the Lender's History and Reputation
Each lender is different, both in the services and products they offer and how they work with borrowers and do business. Your money and financial well-being are basically in a lender's hands so you want to make sure they'll treat them with the same care you do.
This includes conducting their business in a reputable way that won't lead to problems for you in the future. Just think about the current credit crisis. At the root of the problem are lenders that didn't act responsibly on their part and didn't practice good business. Now it's many of the borrowers who are paying the consequences. Before approaching a lender:
- Check with the Better Business Bureau to see what complaints, if any have been brought against them.
- Find out how long the company has been established.
- Find out whether or not they resell their loans, and if so to whom they sell the loans.
- Look for an indicator of customer satisfaction ratings.
- Analyze the businesses that the lender works with to get an idea of the quality of the company they keep.
- Go to their webpage and see if it's been updated recently. See if they have updates on news and current events which indicates that they are knowledge and involved in the field of finance.
Evaluate the Lender's Services
Sometimes choosing between lenders can come down to the services they offer and how well they provide them. Remember, a lender is working for you so the more they can offer the more value they bring to the mix. Below are some of the services that a good lender will offer.
- Customer Service that's easily accessible through multiple channels
- Customer Service that's efficient 24-hours a day
- Online capabilities for managing your loan
- Quick resolution of problems
- Educational services that help borrowers learn to better manage their loans and learn about other financial issues
- Ability to apply online and get quick approval
- Special Incentives offered at origination and during repayment period
Evaluate Terms and Payment Options of the Student Loan Offer
Repaying the student loan is your end of the bargain. Good lenders will make repayment easy by giving you plenty of options and not tacking on a lot of additional expenses. Of course, one of the most important repayment factors is the interest rate the lender is offering on the loan. The concept of interest rates for borrowing is covered on the site as well for those that want more on the subject.
Here are the things you'll need to understand before you establish a loan that needs repaying.
- What is the interest rate? This won't apply to most FFEL loans, but will matter greatly for private student loans.
- What fees are associated with taking out the loan?
- How much will they lend to you?
- What fees are associated with the loan after it's been established?
- How many flexible repayment options does the lender offer? The more the better.
- How long is the loan repayment term?
- Do they allow you to combine or consolidate loans?
- Are there any penalties for paying off the loan early? You shouldn't be punished monetarily for getting the lender's money back to them.
- Do they offer benefits to borrowers who repay on time consistently?
- Is there late payment forgiveness?
- Do they offer a deferment period?
Evaluate Student Loan Forgiveness of the Lender
This isn't important until you run into trouble with repaying your loan and then it can mean all the difference in the world to your loan, credit score, financial future and more. Any lender that is unwilling to work with a borrower in need isn't worth one month of the interest they'll charge you.
The federal government offers Student Loan Forgiveness Programs for federal student loans. This is very beneficial for students since you can get a portion of your loan or the entire balance cancelled. Other programs allow student borrowers to volunteer their services in the military or organizations like the PeaceCorps and work off the balance if they don't have the cash to pay.
Those with private student loans won't be able to benefit from student loan forgiveness programs but there are still ways in which lenders can help you out if you're having rouble repaying.
Good lenders should be willing to:
- Waive some fees.
- Adjust your loan repayment term.
- Adjust the repayment plan you're on.
- Reinstate benefits if they are lost.
Though it's not a pleasant thought, you need to take into consideration the possibility of having to handle this tough issue and how the lender is likely to handle it themselves. For those that want to skirt the issue best they can check out how to avoid borrowing too much.