Discover Student Loans: Are They a Good Option?

Discover Student Loans: Are They a Good Option?

Discover is a solid backup when federal loans don't cover all your education needs. Discover offers generous repayment assistance that can provide borrowers with peace of mind. However, the lender leaves something to be desired when it comes to refinancing.

Good for

  • Borrowers tapped out on federal funding who want a lender offering repayment assistance.
  • Graduate school borrowers who want a longer grace period than average.

Bad for

  • Lack of refinancing options.
  • No co-signer release.

Editor's Rating

4.0/5.0

Discover offers some of the most generous repayment assistance options of any private lender and is a solid backup when federal loans don't cover all your borrowing needs. However, Discover's rates are higher than some of its major competitors and it only offers refinancing for customers in 10 and 20 year terms; this can be limiting for borrowers seeking to manage costs by refinancing.

Discover Student Loans Review: Should You Apply?

Borrowers facing financial troubles will have more leeway with Discover than they will with other lenders; Discover offers repayment assistance that can be employed in times of need without resorting to forbearance. These include early repayment assistance, which grants an extra three months of breathing room beyond the initial grace period, payment extensions and reduced payments for borrowers falling behind on their bills. Borrowers wary of private lenders, but tapped out on federal funding, have a solid backup in Discover.

If you're looking to refinance your existing student loans into the shortest term possible, we recommend checking with other student loan companies like SoFi or Citizen's Bank, as Discover only offers 10- and 20-year terms for its Private Consolidation Loan. In the current marketplace, there are many lenders that offer terms for as little as five or seven years. All else equal, shorter terms mean higher monthly payments in exchange for long-term interest savings. Discover's Loan Consolidation may suffice for borrowers who want to balance monthly payments and interest savings, however it's not the best deal around, and aggressive cost-cutters will be better off elsewhere.

Discover also offers a 1% cash reward for students with at least a 3.0 GPA, which is a welcome feature. Rewarding borrowers for good grades is a practice that has been gaining traction with insurance companies and online lenders like SoFi. Although this likely isn't a game-changer for most borrowers, Discover's 1% cash reward is available on every new student loan you take out and can be used for any purpose, not just education. This means that good students can obtain the 1% cash reward year after year, assuming they borrow annually from Discover, amounting to significant earnings.

Discover is unusually strict when it comes to releasing co-signers. Because most student loan applicants lack significant credit history or employment experience, the majority of private student loans are co-signed. Many lenders who issue co-signed student loans allow co-signers to be released from their duties after a few years, once the borrower has the chance to build up his or her credit history. Unfortunately, Discover is uncompromising on this point, as any co-signer of a Discover Student Loan will be required to maintain their name on the loan until it's paid off. This can be off-putting for co-signers wary of long-term commitments.

Discover Student Loans Rates, Terms and Fees

Discover charges no fees, which means that every payment you make will be applied to either interest or principal on your loan. The rates offered for its Undergraduate Student Loans are fairly consistent across its Graduate and Professional Education offerings as well but may vary depending on your credit score and field of study. Interested applicants should check with Discover to see their unique terms.

Undergraduate Student Loan Features

Loan typePrivate student loan
Loan amount range$1,000 up to 100% school-certified expenses ($120,000 max with other financial aid)
APR range
  • 5.99% - 13.99% Fixed rate
  • 3.99% - 12.99% Variable rate
Fees
  • Late fee: none
  • Prepayment penalty: none
  • Application fee: none
Loan terms
  • 15 years for Undergraduate
  • 20 years for Graduate
Discounts0.25% rate discount with autopay1% cash reward

Discover also offers a Private Consolidation Loan for students looking to refinance. The loan comes in both 10-year and 20-year terms for those who want to repay their loans faster. While these terms may beat out its competitor Wells Fargo, Discover's Private Consolidation Loan fails to stack up against its smaller competitors; many who offer refinancing in both five- and seven-year terms at lower rates.

Private Consolidation Loan Features

Loan typeRefinance/Consolidation
Loan amount range$5,000 - $150,000
APR range
  • 5.24% - 8.24% 10 year
  • (5.49% - 8.24% 20 year) Fixed rate
  • 4.87% - 8.12% Variable rate
Fees
  • Late fee: none
  • Prepayment penalty: none
  • Application fee: none
Loan terms10 or 20 years
Discounts0.25% rate discount with autopay

Loan Repayment Plans

Discover gives borrowers two choices: You can either defer all payments during your time in school or make fixed monthly payments of $25 while enrolled. The deferred plan is standard across most lenders, while the in-school repayment option is less common and gives borrowers the opportunity to save money on interest.

Both repayment plans are offered across all of Discover's student loan products, with the exception of its Private Consolidation Loan.

In-school repayment option:

Discover allows borrowers to make fixed monthly payments of $25 per month for the balance of their enrollment and grace periods, provided they're enrolled in school at least half-time. Afterward, the monthly payments will automatically increase to the standard principal and interest amounts. This is cheaper than the fully deferred option and allows borrowers to make manageable monthly payments while in school.

Deferred-repayment option:

Discover lets borrowers defer all their payments for the balance of their enrollment and grace periods, as long as they remain enrolled at least half-time. This is the more expensive of Discover's two repayment plans, as the unpaid interest will be added to your total loan balance, increasing the total cost of your loan. Interest also continues to accrue while your loan is in deferment.

Forbearance and Deferment

Discover offers several industry-standard deferment options, as well as federally mandated deferment offerings for military and public service. What distinguishes Discover is its nine-month grace period for graduate students, which is longer than the typical grace period allotted by other lenders. Grace periods are left to the lender's discretion and usually last for six months.

Permitted DefermentsLimit
Grace period upon leaving school
  • 6 months for Undergraduate
  • 9 months for Graduate
In school or entering graduate schoolUp to 48 months
ResidencyUp to five years

Discover is generous with repayment assistance and offers a variety of tools that can be employed before borrowers are forced to resort to forbearance. These range from temporary reduced payments to pauses on your monthly payments. Repayment assistance is only granted to borrowers struggling with their payments.

Repayment AssistanceTermsConditions
Early Repayment Assistance ProgramThree-month postponement of payments
  • Student must be within first three months of repayment period
Payment ExtensionAllows delinquent accounts to make their loans current by making three minimum monthly payments within a 90 day period
  • Account must have been in repayment for longer than six months
  • Account is more than 60 days delinquent
  • Account not in forbearance within past six months
Reduced PaymentMinimum monthly payment reduced to interest-only component, subject to $50 minimum, for an initial period of six months
  • Account must be less than 60 days delinquent
HardshipInterest rate temporarily reduced for up to 12 months, subject to $50 minimum
  • Must be experiencing extreme economic hardship or excessive debt burden

Forbearance is discretionary and granted on a case-by-case basis but may be mandatory in certain situations; the conditions for mandatory forbearance are specified by the U.S. Department of Education. Discover's discretionary forbearance terms are outlined below.

ForbearanceLimit
Permitted PeriodUp to 12 months
Conditions
  • Cannot be received consecutively
  • Certain number of on-time payments needed to maintain eligibility for continued forbearance
  • Student must be experiencing financial hardship, unemployment, excessive debt burden or medical disability

Who Can Qualify for Discover Student Loans?

Discover is available to most borrowers with good credit scores. Based on Discover's 2017 annual report, the average Discover Student Loan applicant had a credit score of 722, or 733 with a co-signer. It's worth noting again that Discover does not permit co-signer release from loans.

The lender permits applications from noncitizens, international students and part-time students with additional documentation. Only schools that maintain an existing relationship with Discover are eligible for Discover Student Loans. You can verify whether Discover lends to your school by contacting the lender's customer service representatives.

Credit scoreNot specified (average borrower/co-signer credit score of 733)
Co-signerPermitted (No release eligibility)
Accepted citizenship status
  • U.S. citizen
  • Permanent resident alien
  • Non-U.S. citizen with U.S. citizen/permanent resident alien co-signer
Part-time studentsAt least half-time
Eligible schoolsSchool must have existing relationship with Discover. Borrowers can check by contacting the lender.

How Does Discover Compare to Other Student Lenders?

In its annual financial report, Discover explicitly lists Sallie Mae and Wells Fargo as two of its largest competitors in the student loan space. When compared side by side, Discover takes a balanced approach between repayment flexibility and ease of qualification. However, its rates are higher than its rivals.

DiscoverSallie MaeWells Fargo
Loan types offered
  • Private student loan
  • Student loan refinance
  • Private student loan
  • Private student loan
  • Student loan refinance
APR range
  • 5.99% - 13.99% Fixed
  • 3.99% - 12.99% Variable
  • 5.74% - 11.85% Fixed
  • 4.25% - 11.10% Variable
  • 5.94% - 11.26% Fixed
  • 4.30% - 10.30% Variable
Loan amount$1,000 up to 100% school-certified expenses ($120,000 max with other financial aid)$1,000 up to 100% school-certified expenses$1,000 to $120,000 (All loans included)
In-school repayment optionsIn-School or DeferredDeferred, Fixed, or Interest-onlyImmediate or Deferred
Part-time studentsAt least half-timeYesYes
Co-signerPermitted: No releasePermitted: release eligible after 12 monthly paymentsPermitted: Release eligible after 36 monthly payments
Discounts
  • 0.25% auto debit
  • 1% cash reward
  • 0.25% auto debit
  • 0.25% auto debit
  • 0.25% - 0.50% relationship discounts

Discover Student Loans vs. Sallie Mae

Borrowers who want the lowest rates and most repayment options should consider Sallie Mae, as the lender offers lower rates for its fixed-rate and variable-rate loans when compared to Discover. Sallie Mae has the greatest variety of repayment plans, offering no fewer than three choices for undergraduate borrowers, including fixed payments, full deferral and interest-only repayments. The interest-only repayment plan is also significantly cheaper than Discover's In-School repayment option. Finally, Sallie Mae offers generous terms for co-signers, allowing release after just one full year of on-time repayments (credit pending). By contrast, Discover co-signers are essentially handcuffed to their co-signed loans until they are fully paid off. However, Sallie Mae might be slightly more difficult to qualify for, as its accepted applicants have an average FICO score of 746 versus Discover's average of 733 for co-signed loans.

Discover vs. Wells Fargo

While Wells Fargo's rates aren't much lower than Discovers' at face value, the bank's relationship discounts tip the balance in its favor for existing and new checking account customers. Borrowers who open a checking account with Wells Fargo can achieve a combined rate discount of 0.50%–0.75% off their initial interest rates when paired with their autopay discount. The bank grants relationship discounts for new and existing checking accounts, repeat student loan borrowers, and Portfolio by Wells Fargo customers. However, borrowers should note that Wells Fargo's relationship discounts do not stack, so the largest rate concession one could conceivably achieve is 0.75%.

Discover vs. Federal Loans

Federal loans will almost always offer lower rates and greater repayment flexibility than private student loans; while Discover Student Loans are a solid second choice to federal loans, we recommend that borrowers use them to supplement gaps in borrowing that federal loans don't cover. The advantages of federal student loans are numerous and include both income-based repayment plans and the suspension of interest accruals during deferment, neither of which we've seen offered by Discover or other private lenders. These unique benefits significantly reduce the interest expenses on your loans. Additionally, most federal loans are approved based on need and not credit (with the exception of the PLUS loan), which means that applicants need not worry about minimum credit requirements. We strongly recommend that borrowers fully explore both federal and state-level financing options before resorting to private lenders like Discover.

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