Choosing a Lender
Not all student loan lenders offer the same loan incentives. Because lenders offer a variety of services, it is important to research different lenders and then choose the one that is right for you. Consider the following when choosing a student loan lender.
How often is loan interest capitalized?
If you are planning on borrowing an unsubsidized Stafford loan, then you need to know how often lenders capitalize interest. Lenders that capitalize interest only once when the loan goes into repayment will save you more money than lenders that capitalize more frequently, such as monthly, quarterly, or annually. The more lenders capitalize interest, the more interest you have to pay.
Is the customer service good?
Many lenders sell their loans to secondary markets after the loans have been disbursed, and some lenders use loan serving agencies, or servicers, to handle the processing of payments and customer service requests. You will need to find out which secondary markets or servicers different lenders use in order to know how good or bad the customer service will be once repayment begins. Some lenders/servicers offer round-the-clock customer service, such as a 24-hour voice response system that provides updates on the status of your loan. Be sure to research lender/servicer competency in customer service and consider choosing the one with the best reputation.
Is extra effort put forth to help students avoid default?
Even though it is the responsibility of the student to repay any loans, some lenders put forth a little extra effort to help you avoid default. A loan is considered in default if it has been in delinquent status for 270 days. Some lenders offer default avoidance programs, and some send numerous letters and make numerous phone calls to students who are about to go into default. You never know what kind of circumstances you will be in when repayment begins, so try to pick a lender that puts forth a little extra effort to help students avoid default.
Research lender websites as much as possible before you choose a lender, so you can compare the different services that each one offers. Many schools maintain a preferred lender list of lenders they feel benefit students the most. While choosing a lender from your school's preferred lender list will speed up your loan processing, keep in mind that you have the right to choose a lender that is not on your school's list. The relationship that you will have with your lender/servicer may be a long one, so choose wisely.
Posted: 4/3/2004
Updated: 7/14/2008