1. Headline
  1. Headline
By John W. Schoen Senior producer
msnbc.com
updated 8/14/2007 7:28:56 PM ET 2007-08-14T23:28:56

No matter which lenders schools recommend, the best loan program for one studentmay not be the right one for another family. As complex as the process is, a little homework can save hundreds or even thousands of dollars over the life of the loan.

There are three basic loan types: direct loans, subsidized private loans (known as Federal Family Education Loan Program) and unsubsidized private loans. In addition, the basic Stafford loan (available both directly and through FFELP private lenders) carries a maximum interest rate of 6.8 percent — though many lenders discount this. PLUS loans (also available through direct or private lenders) carry an 8.5 percent rate cap, but some lenders offer lower rates. Unsubsidized private loans carry no rate caps.

Schools have negotiated a variety of other breaks for student borrowers from lenders they put on their preferred lists. Here are some things to look for:

  • Discounted interest rates
    Though Stafford loans carry a maximum of 6.8 percent, some lenders will cut that to as low as 5.5 percent, according to Kantrowitz. On PLUS loans, the maximum rate is 8.5; some lenders will go as low as 6.5 percent. The lowest rate Kantrowitz has seen on private student loans is 6.35 percent.
  • On-time payment discounts
    If you’re a good bill-payer, this can save you money. Unfortunately, this discount usually goes by the wayside: Kantrowitz says that only about 20 percent of borrowers make their first 36 payments on time. If you’re a late bill payer, this discount won’t help.
  • Waiver of origination, default fees
    Stafford loans carry a 2.5 percent fee that’s deducted from the loan balance up front. Some lenders will waive the fee. One caution: If you later consolidate your loans with another lender, you may have to repay the fee.
  • Discounts for automatic debit
    If you don’t mind having your student loan payments debited directly from your checking account, you can save another quarter or half a percentage point from some lenders. Unfortunately, fewer than one in six borrowers sign up for it.
  • Payment forgiveness
    If you have a good payment history, some lenders will let you skip the last few payments.
  • Late payment
    Some lenders will consider your payment late if it’s not in their hands by the due date every month. Many will give you a grace period of 15 or 30 days.
  • Customer service
    The level of service you can expect varies widely. Look for a lender that offers phone advice or answers to billing questions 24 hours a day and has a Web site you can go to for additional help or information.
  • Problem solving
    If you have a billing dispute or need help, some lenders are much better than others at resolving the problem. Schools are often a good source of information; with a bad lender, they have to wait on hold forever, too.

© 2013 msnbc.com Reprints

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

More on TODAY.com

  1. Joan Lunden: 10 things I wish I knew before I was diagnosed with breast cancer

    From the moment you hear the words ‘You have breast cancer,’ it’s almost like you’re shot out of a cannon. Here are 10 things I wish I knew before I was diagnosed.

    10/1/2014 10:52:45 AM +00:00 2014-10-01T10:52:45
  2. Want to help? A guide to breast cancer charities

    In the United States an estimated 296,000 women and 2,240 men will be diagnosed with breast cancer this year and almost 40,000 women and 410 men will die of the disease. That's one death every 14 minutes, according to the National Breast Cancer Coalition.

    10/1/2014 10:45:11 AM +00:00 2014-10-01T10:45:11
  3. Samantha Okazaki / TODAY
  1. Nbc News

    9 things we learned from Brian Williams' Facebook chat

    10/2/2014 1:41:28 AM +00:00 2014-10-02T01:41:28
  1. Noel Vasquez / Getty Images Contributor

    Mila Kunis,  Ashton Kutcher welcome baby girl

    10/2/2014 1:24:09 AM +00:00 2014-10-02T01:24:09
  1. Kevin Lamarque / Reuters

    Secret Service director resigns amid scandal

    10/1/2014 7:30:52 PM +00:00 2014-10-01T19:30:52
  1. Texas Ebola patient had contact with kids

    Texas Gov. Rick Perry said in a press conference on Wednesday that “some school-age children” had been identified as having contact with the man diagnosed with the first case of Ebola in the United States. 

    10/1/2014 5:37:52 PM +00:00 2014-10-01T17:37:52