Student Loan Servicing

By: EconomyWatch Content   Date: 7 December 2009

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Obtaining a student loan servicing is crucial for students to finance the mushrooming costs associated with higher education. The federal government has initiated several scholarship and grant programs to support financially weak students. Still, these are   inadequate to cover the increasing number of college aspirants.

Student Loan Servicing: Important Considerations

Selecting an appropriate student loan servicing provider is almost as vital as choosing a college for higher studies. An improper judgment could tarnish a student’s creditworthiness for a prolonged period. Reviewing interest rates for comparing student loan servicing lenders is obvious. However, a student must also evaluate the student loan programs and lenders on the following parameters: 

Loan Fees

Most student loan lenders charge an origination fee for processing the loan documentation. This fee is typically one percent of the loan amount, though some lenders may charge as much as 3-4%. In fact, the fee on federal student loans, such as Stafford loans and federal PLUS loans is usually about 3%. While shopping for student loans, a borrower must not only search for low interest rates, but low fees as well. An above-average student may succeed in getting the origination fee waived. Remember, an origination fee is non-tax deductible expense, which adds to the burden of debt.

Borrower Incentives

Some lenders offer incentives to students to help them make regular payments on time. These incentives can help to considerably relieve the burden of student loan debt by reducing the cost of borrowing.

The common incentives offered by education loan providers are:

·        Interest rate reduction, as much as 2-3%.

·        Refund of origination fees.

·        Release of a co-signer from the loan. 

Debt Management Services

Some lenders offer comprehensive debt management services, such as personalized loan counseling, to their clients.

Such services are extremely resourceful for a student, providing assistance with:

·        Allocating funds for different education expenses

·        Saving funds and planning repayments

·        Accessing alternatives, such as loan deferment and consolidation, when facing defaults.

A borrower may also inquire if the student loan servicing provider offers loans for parents, or ‘sponsor’ loan to borrow on behalf of the student. This loan option can be very resourceful for students with bad credit, or credit history of less than 27 months.


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