Student lenders often offer incentives to make their loan products stand out from the crowd. The industry calls these “Borrower Benefits.” While they can often save you lots of money over the life of a loan, you should consider them carefully to see if they will really benefit you. Here are some tips on how to consider these features of a student loan:
1. Interest rate reductions are often more valuable than principal reductions.
The reason: you usually get the benefit of the reduction each year, rather than just once. However, if you plan to repay the loan very soon, a principal reduction could be better. And, a principal reduction is usually a benefit that can’t be “unearned,” whereas an interest rate reduction could be taken away from you.
2. Read the fine print very carefully.
Borrower benefits can sometimes have restrictions and limits. Talk to the lender and check your promissory note and promotional material for all the details. Especially ask if there are ways the lender can revoke the benefits (for example, if they sell your loan).
3. Hold up your end of the bargain.
This is your money, and it is your responsibility to make sure you comply with the requirements of earning the benefits. The most common requirements are automatic debit of your monthly payment and a certain number of on time payments.
4. Remember to set up auto debit of your monthly payment in the way the lender requires.
This should be easy to comply with – don’t forget or you could miss the benefit.
5. Make monthly payments on time.
Understand how a lender defines “on time,” some have a strict definition. With some lenders, a payment that is even a day late may disqualify you from achieving the benefit. This is part of the fine print you should understand.
Shop around. Borrower benefits are common on both federal student loans and private loans, so make sure you weigh the value of borrower benefits when you are comparing loans.