The Best Student Loans of 2016

The best student loans will have favorable payment terms and flexibility, including the lowest interest rates, fees, and repayment and deferment flexibility. Direct subsidized loans and Perkins loans through the Department of Education generally meet this, but you can’t borrow as much, and you need to demonstrate financial need. Private lenders have more diverse considerations, so we’ll walk through how you can pick the loan with the best financing terms.

Best Loans for College and Graduate Students

We’d recommend borrowing through a direct subsidized loan first, then a Perkins, followed by direct unsubsidized loans and private loans for an undergraduate degree. Graduate and professional students don’t qualify for direct subsidized loans, so Perkins and direct unsubsidized loans will be the best options.

With low student loan interest rates (currently 3.76%), getting direct subsidized lending is one of the cheapest ways to finance college. There is an origination fee of 1.068% that gets taken automatically from your loan whenever it is disbursed - but when you’re repaying your loan, the interest rate is a fixed 3.76% for the life of the loan. The Perkins loan (for students demonstrating “extreme financial need”) can potentially get you more money than the direct subsidized loans in the first two years, but once you leave, you’ll be paying a fixed 5% rate. Unsubsidized loans are the next best option, with the same rates and fees as their subsidized options (although the interest you accrue while studying gets capitalized to the loan balance). Should interest rates or origination fees increase more, Perkins loans will become the better option based on borrowing costs. 

Student Loan Programs from the Department of Education as of July 1, 2016

SchoolType of LoanInterest RateFeesMax Amount
Undergraduate Perkins Loan 5.000% 0.000% $5,500
Direct Subsidized 3.760% 1.068% Y1: 3,500, Y2: 4,500
Y3+: 5,500
Direct Unsubsidized 3.760% 1.068% 2,000
Graduate & Professional Perkins Loan 5.000% 0.000% 8,000
Direct Subsidized N/A N/A N/A
Direct Unsubsidized 5.310% 1.068% 20,500

Best Private Loans for Undergraduate Students

We reviewed major national student lenders to find the ones that generally had the best interest rates, terms, and flexibility. Actual terms are based on each student and co-signer's financial and credit background, so to find the most suitable lender, we recommend submitting your information to at least three lenders, and comparing them side-by-side. 

Private Student Lender with the Lowest Fixed Interest Rates: SunTrust

We surveyed major terms across several national lenders, and found PNC to have the best starting package for private student loans. Their fixed interest rate ranges were the lowest out of the seven lenders, and they had very generous rewards and discounts. Upon graduation, SunTrust reduces your loan principal by 1% (rare among its peers), and knocks off 0.50% from your interest rate with automatic payments from a SunTrust bank account. The other lenders typically reduce your loan interest rate by 0.25% for auto payments, but SunTrust’s terms were much more generous. Depending on how you and your co-signers’ profiles are underwritten by the lenders’ standards, SunTrust would be a good place to start your search with its combination of low fixed rates and generous discount terms. On the flip side, its variable loan interest rates were on the higher end. And be vigilant about paying your bill on time - there’s a 5% late payment penalty fee.

Best Private Loans with the Greatest Leniency: Discover

Discover is another one of our top-ranked private student lenders because they have the most lenient late payment policy on student debt, with good rewards and discounts too. Other student loan providers will charge about 5% of the payment or $5 - $25 each time you miss your debt payment, but Discover doesn’t. We’ve all missed a due date here and there, and it’s nice to have this safety net. Getting financing through Discover can be a great option for more forgetful students, but don’t abuse this for the sake of your future credit score. 

Along with SunTrust, Discover is the one other company that will give you 1% cash rewards back on the disbursed amount of your loan - if you have a 3.0 college GPA. Compared to SunTrust, Discover’s fixed interest rates are currently slightly higher (6.24% - 11.49% vs. 4.6% - 11.15% as of Nov 2016), but variable interest rates are a bit lower. However, depending on where the numbers fall (how often you miss payments, lenders’ quotes on your credit and income history), and SunTrust’s extra 0.25% from auto pay, the two might even out.

Good Variable Loan Option to Consider

Sallie Mae is a good starting point if you’re in the market for a variable student loan. While most of their terms are standard compared to other lenders, their variable interest rates were on the lower end based on our survey. We compared major national student lenders, and Sallie Mae had the lowest starting variable interest rates (2.625% in Nov 2016 versus 3.03% at the next lowest lender). We’d still recommend comparing several lenders because Sallie Mae may ultimately wind up charging you a higher variable rate based on how they evaluate your credit and income histories.

Good Lender Option to Consider for Low Income Households

Almost all of the major student lenders we questioned did not disclose their minimum income requirements. Citizens Bank was the only provider that was transparent, and they have a very fair starting point. They’re looking for co-signers with at least one year of employment history and $12,000 in annual income. You should still compare three lenders at the minimum. Despite not stating their income requirements, other lenders might still extend you a student loan at fair rates, and Citizens Bank may still decline your application if it doesn’t meet their other criteria.

How to Find the Best Student Loan for You

Three of the most important criteria in the best student loan companies are: low costs, flexible and cooperative repayment terms, and good servicer reputation. The type of student loan that’s best for you is another question. Submit your credit history, paystub information, and debt-to-income ratio to at least three student loan companies to give yourself some options. Despite the same student debt levels, lenders all have different criteria, so you might be an ideal candidate for Lender A, but Lender B has had a bad experience with your type of credit history. That means when you’re evaluating a lender, use the three factors below as a starting framework. 

Interest Rates, Late Payment Fees, and other Costs

Ask how often interest rates are compounded, what types of reductions they have, what your monthly payment will be, and compare them. All banks will knock off 0.25% from your interest rates if you set up automatic payments - a great discount to take advantage of. PNC will shave 0.50% off, and it doesn’t even need to be from a PNC bank account. Just check that all rates are the same - with discounts, and including the LIBOR or prime rate if variable.

The other major fee is for late payments. Most banks (except for Discover) will add on a 5% or fixed dollar fee if your payment is 15 days late. SunTrust needs your payment within 10 days of the due date. Low rates are great, but if you start missing your deadlines, late fees will add up and eat into the interest savings. None of the major student lenders have fees for prepayment, origination or applications, so if your provider wants to charge you one of these, go elsewhere.

Repayment Terms

You want a bank and a servicer that is willing to work with you. In a worst case scenario, students might be unemployed or their paychecks change from week to week - and that’s what you’ll need to protect yourself against. It’s best to find someone who will be understanding, flexible, and open to figuring out the best path forward. For this, speak to your lender or their servicer, and find out what types of hardship or payment assistance programs they have. Can they defer or forbear your student loan payments? For example, PNC might be able to forbear their customers’ loans for two months in 12-month intervals under the right circumstances. Others we spoke to flat out said there were no plans - you have to make your payments on time.

Servicer Reputation

This is arguably more important than reviews of your bank. After your lender issues your loan, most of the work gets passed on to a servicer - so anything from loan payments, questions about your loan, or working out repayment options gets handled by them. Speak to any upperclassmen, mentors, or financial aid representatives at your college and see what types of experiences they’ve had with the servicer you’re considering.

Private Student Loan Options Comparison (Nov 2016)

When you contact and speak to them, set up a table or a spreadsheet so that you can compare all of the terms on an apples-to-apples basis. Here are the base ranges of rates for an undergraduate student loan as of November 2016, excluding discounts, and including the base LIBOR or prime rate.

LenderFixed RatesVariable RatesLate FeesReductions to Interest Rates
Min Max Min Max
Citizens Bank 5.75% 11.75% 3.03% 10.28% 5%, waived for military 0.25% for opening bank account; 0.25% for auto pay
College Ave 5.99% 12.1% 3.09% 9.6% Lesser of 5% or $25 0.25% for auto pay; 0.25% returning customer discount
Discover Student Loans 6.24% 11.49% 3.62% 9.12% No late fees 0.25% for auto pay; 1% for 3.0 college GPA
PNC 6.19% 11.84% 4.23% 10.48% Lesser of 5% or $5 0.50% for auto pay from any bank account
Sallie Mae 5.75% 11.90% 2.63% 9.85% Yes, but not disclosed 0.25% for auto pay
SunTrust 4.60% 11.15% 3.87% 9.92% 5% 0.25% for auto pay; 0.5% for SunTrust auto pay; 1% of principal for graduation
Wells Fargo 6.49% 11.99% 3.74% 9.74% Yes, but not disclosed 0.25% for auto pay; 0.25% for Wells Fargo checking account or prior loan; 0.50% for Wells Fargo PMA

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