You’ve recently determined that your child will need a student loan to help cover the remaining cost of college. You’ve probably also discovered that there are many options to choose from. What might be less obvious is that there are some big differences between those options and many providers make it hard for you to know what those differences are.
Knowing how to spot these differences can help you get the best loan for your situation and potentially avoid thousands of dollars in added costs and fees.
- Marketing Tactics. Many student loan providers won’t tell you the actual interest rate you will receive until you have invested a significant amount of time and provided the necessary information to apply for their loan. Instead, they advertise using the lowest rate they offer, without explaining that only a small percent of applicants qualify for it.
- Incomplete information. All private student loan lenders are required by law to provide consumers with the annual percentage rate (APR) of their loan products. The federal government however, does not publish the APR for the widely used PLUS Loan for parents. Instead, they provide the interest rate. By not disclosing the APR, consumers often don’t see the effective rate for the PLUS Loan which is much higher than the advertised interest rate due to an upfront fee charged on PLUS Loans not included in the advertised rate.
What You Can Do:
- Do your homework. Be sure to compare several different options to determine the best fit for your situation. Things to look for include: interest rates, repayment options, terms and any additional charges or fees.
- Be mindful of advertisements including “rates as low as”. Most applicants don’t qualify for the lowest advertised rate. Instead compare the highest advertised rates. If the lender won’t tell you your rate in advance of applying than the most important benchmark to consider is the highest rate they charge.
- Know your FICO score before applying. Most lenders of private student loans use this as a key factor in assigning your interest rate and APR. Some lenders will provide their interest rates upfront. If you know your FICO score, this allows you to learn what interest rate or APR you will receive if you qualify for their loan before even starting an application.
By: Steve McCullough
Iowa Student Loan
At Iowa Student Loan, we believe in providing you with as much information as possible upfront, before you even start an application. That’s why we offer a national comparison for students and families interested in our Partnership Advance Education Loan®.