Why You Should Shop Around and Compare Student Loan Options
Choosing the best lender each year is important. Understanding that finding the best one each year is key to saving the most money. This article dives more into this.
When you've already borrowed money for school, it may be tempting to stick with your current student loan lender for all of your future loans.
After all, you've already applied and are comfortable with the application process -- plus you know what to expect in terms of dealing with the lender and starting to make payments.
The reality, however, is that you could end up costing yourself a lot of money if you just stick with your default lender instead of shopping around and comparing all of your options. Here are a few key reasons why comparing student loans every year is crucial.
1. Loan terms may change from year-to-year
Your loan may have been a good deal last year, but the rate and terms your lender offered you in the past aren't necessarily going to remain the same every single year.
You may end up getting charged a higher rate in subsequent years than you did initially. Or the lender may have added or eliminated loan options, so you may not be able to get the same rate and terms as you did before.
Since you can't assume that you'll be given the exact same deal just because of your pre-existing relationship with your loan provider, there's not much benefit to just sticking with your current loan servicer.
2. A different lender may offer a cheaper rate or better terms
New lenders come on the market all the time, and existing lenders change their policies. Because rates can vary so much from one lender to another and from one year to the next, it is absolutely crucial to make sure you compare multiple loan quotes from different lenders each year because any past shopping around you did is now based on outdated data.
Another lender may now offer a much more competitive rate than your current lender is willing to provide. Or they may offer better terms in other ways, such as more flexible repayment options or a shorter path to cosigner release.
Loyalty to your current lender shouldn't prevent you from getting the best possible deal on your loan.
3. Even small differences in rates can make a big impact
When you are taking out student loans, you're probably borrowing a lot of money -- sometimes, tens of thousands of dollars. And you're most likely going to take quite a few years to repay the entire loan balance. In fact, you may take a decade or longer to pay off your loan balance in full.
When you're borrowing a lot over a long repayment timeline, even a small difference in the interest rate you're offered could make a huge impact on how burdensome repaying your loan becomes after graduation.
For example, say you take out a $20,000 student loan to be repaid over 10 years and one lender offers you a rate of 5% and another offers 5.5%. The first loan would cost you $212 per month and $25,456 in total over time. The second would cost you $217 per month and $26,046. You would have to pay almost $600 more, even though there's less than a full percentage point difference between the loans.
There's no reason to waste this extra money or put more strain on your budget.
4. Shopping around and comparing student loan options is easy
Another great reason to shop around and compare student loan options is because it is so simple to do. Most lenders allow you to get pre-qualified and check rates online without affecting your credit score. It takes mere minutes to complete an application and find out the rate that you would have to pay on your student loans.
Not only is it quick and simple to check online rates with different lenders -- without affecting your credit score -- but there are even websites that help you with this process. For example, you may be able to fill out one application and see your rates from multiple different loan providers.
Juno can also help you to make sure you're getting the lowest possible rates. We get groups of borrowers together and negotiate with lenders on behalf of the group to help them save. We also compare rates and terms from multiple different partner lenders who have been fully vetted, so we can find each borrower the best terms for their situation.
Since you can potentially save hundreds or even thousands of dollars on interest costs over time by doing a few minutes of work, there's no excuse not to shop around.
5. Managing multiple loans is easy
If you're tempted to avoid shopping around because you don't want to deal with having multiple student loan lenders, the good news is that it's actually pretty simple and easy to work with different loan servicers.
Virtually every student loan lender offers online access to your account so tracking your loan balances is effortless. You can also use apps such as Mint to aggregate all of your account data in one place so you don't even have to log into multiple websites to see your different loans. And many private lenders offer autopay discounts, so you can set up automatic payments with each lender and don't have to worry about paying multiple student loan bills.
Of course, if you decide you don't want to manage multiple loans after graduation, you always have the option of consolidating by refinancing. This would involve getting a new loan to repay multiple existing student loan lenders. Often, you can get a lower student loan refinance rate than the rate you are currently paying -- especially if your credit or income have improved after graduation -- so you can save yourself money by simplifying the repayment process.
Because it is simple and quick to compare student loans each year, and doing so is crucial to get the best loan terms, everyone who is borrowing for school should go through this process annually. And those who have graduated should consider regularly comparing refinance loan options to look for ways to save even more.
Juno can help with refinancing too, as we also negotiate private student loan refinance rates on behalf of groups of borrowers.
Christy Rakoczy Bieber
Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher with experience writing textbooks and serving as a subject matter expert.
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