Editor’s note: This article was published on Aug. 10, 2017.
With more companies competing for their business, families taking out private student loans can often save thousands of dollars by requesting rates from more than one lender, according to an analysis by Credible.com.
An analysis of rate requests submitted by students and their families through the Credible marketplace found that when borrowers prequalified with more than one lender:
- The average difference between the high and low interest rate on 10-year, fixed-rate loans was 1.7 percentage points.
- Borrowers choosing the loan with the lower interest rate could expect median savings of $2,769.
- In addition, private student loans funded through the Credible marketplace so far this year carry rates that can be competitive with federal PLUS loans.
Credible’s integrations with lenders and credit bureaus allow borrowers to instantly request rates they are prequalified for with multiple lenders.
When students and families request rates through the Credible marketplace and prequalify with more than one lender, the difference between their high rate and low rate averages 1.1 to 1.7 percentage points, depending on the loan term and type.
Potential savings when borrowers prequalify with more than one lender
|Loan type||Average difference, high and low rate||Additional lifetime savings|
|10-year fixed rate||1.7%||$2,769|
|10-year variable rate||1.4%||$2,059|
|15-year fixed rate||1.4%||$3,055|
|15-year variable rate||1.1%||$2,980|
Source: Rate requests submitted through the Credible marketplace in 2017.
That represents an additional lifetime savings of between $2,059 to $3,055 for borrowers paying back median loan balances of $15,000 over 10 or 15 years.
Private student loans vs PLUS loans
Credible’s analysis also demonstrates that private student loans can be an attractive option for students and families considering federal PLUS loans for parents and graduate students.
Rates on federal PLUS loans for students headed to school this fall recently increased to 7 percent. Factor in a 4.3 percent up-front fee, and the APR on PLUS loans is about 8 percent.
Borrowers taking out loans from Credible partner lenders in 2017 have secured fixed rates averaging 7.7 percent on loans with 10-year repayment terms. For 10-year variable-rate loans, the average interest rate was 7.6 percent.
Average rates on student loans selected through Credible.com
|Loan type||Average rate (funded loans)|
|10-year variable rate||7.7%|
|10-year fixed rate||7.6%|
|15-year fixed rate||8.1%|
|15-year variable rate||7.7%|
All other things being equal, the shorter the repayment term, the lower the rate offered by most lenders. So average rates on 15-year fixed-rate loans were slightly higher — 8.1 percent for fixed-rate loans, and 7.7 percent for variable-rate loans.
Improving the odds with a cosigner
Not every borrower who requests rates through Credible.com will prequalify, and not all borrowers who prequalify will get competing offers from more than one lender.
Lenders typically require a cosigner for undergraduates taking out private student loans. The Credible marketplace allows borrowers to request rates with or without a cosigner.
Among borrowers requesting rates with a cosigner in 2017, 45 percent prequalified for a loan from at least one of Credible’s partner lenders. Within that group, 70 percent prequalified with more than one lender.
Among borrowers who requested rates without a cosigner, 15 percent prequalified. Half of that group prequalified with more than one lender.
Average prequalified rate by loan term
|Loan type||Average prequalified rate||Percentage who prequalify at less than 7%|
|10-year fixed rate||8.8%||16%|
|10-year variable rate||7.6%||51%|
|15-year fixed rate||9.2%||7%|
|15-year variable rate||7.9%||41%|
Source: Rate requests submitted to the Credible marketplace in 2017 by borrowers with cosigners .
Among borrowers with cosigners who prequalified for variable-rate loans with 10-year terms, 51 percent were quoted a rate of less than 7 percent. That compares to 16 percent of those prequalifying for 10-year fixed rate loans.
Looking at borrowers who prequalified with cosigners for variable-rate loans with 15-year terms, 41 percent were quoted a rate of less than 7 percent, compared to 7 percent of those prequalifying for 15-year fixed-rate loans.
Who turns to private loans
Students typically turn to private student loans after they’ve exhausted grants and scholarships and hit their limits on the most affordable federal student loans. Once that happens, they may consider costlier federal PLUS loans for parents and graduate students.
Undergraduates can’t take out PLUS loans on their own, and in many cases may prefer a private loan over a parent PLUS loan.
Students and families who are considering private loans may explore their options with multiple lenders to find a lender that will approve them, or offer them the best rate.
A borrower may prequalify with one lender but not another based on the individual lender’s eligibility requirements and underwriting criteria.
Borrowers who request rates with multiple lenders may be offered better rates because some lenders serve particular borrower niches, and because lenders charge interest rates that take into account factors like the borrower’s creditworthiness, the lender’s cost of funding, overhead expenses, and profit margins.
The Credible marketplace offers students loans and student loan refinancing from a broad range of lenders, including traditional banks and credit unions, online lenders, and state student loan authorities. Lenders competing for business through the Credible marketplace currently offer private student loans with variable rates as low as 2.93 percent, and fixed rates as low as 4.70 percent.
Rate request and funded loan data is for period from Jan. 1 to Aug. 9, 2017. “Potential savings when borrowers see more than one offer,” reflects prequalified rates provided to date in 2017 for loans with 10- and 15-year repayment terms and payments deferred until after graduation. The median balance of loans that borrowers requested rates for was $15,000. “Average rates on student loans selected through Credible.com,” is based on closed loans taken out by Credible clients who applied with cosigners. “Average prequalified rate by loan term,” reflects personalized rates provided to borrowers with cosigners using Credible’s integrations with lenders and credit bureaus.