Getting the Best Price

Always check the private lender information provided by your school. Pay special attention if your school provides comparative pricing from multiple lenders and/or explains the comparison shopping method used to select recommended lenders.

Then surf the web. Look at both "aggregator" sites and individual program sites, checking for the information described below. When you shop for a student loan, the most important price factor is the Annual Percentage Rate (APR) that must be disclosed with every loan ad that quotes a rate. If a loan website does not provide the APR for a loan, move on.

The big problem in the price shopping process is "risk based pricing." Almost all lenders will offer a range of APRs and set your actual price based on the credit disclosed in your application. The APR is typically based on your credit score, also known as your FICO score. You need a FICO score of over 700 to be approved and you may need a FICO score as high as 800 in order to receive the best advertised rate. The lower your FICO score, the higher your interest rate.

How do you know what rate you qualify for before you apply? In most cases, you can't. It is possible to use a lender's toll-free number to request the price that corresponds with your FICO score, if you know your FICO score in advance. You can obtain your FICO score for a small fee from the major consumer reporting agencies, for example www.annualcreditreport.com. With most lenders, you must apply and be approved to know what price the lender will give you. Here is the catch: If you apply to many lenders at the same time, the multiple credit inquiries appearing on your credit report will drive down your credit score, possibly increasing the price you ultimately pay. While no research plan is perfect, a good plan would be to pick two or three lenders who appear to have the best pricing and other terms that you want, apply to all of them, and then call to find out precisely what rate you have been approved for, as soon as you receive notice of approval. As of 2010, federal law will require lenders to tell you exactly the rate you qualify for when you are approved and hold that rate for 30 days.

TIP

Never cash the check until you have received a Truth-in-Lending disclosure that shows exactly the APR that applies to your loan. The lender must provide this disclosure before you are finally bound by the loan. Starting in 2010, you may also have a right under federal law to cancel your loan if you are not satisfied.