Discover Student Loans: Are They Worth It? (DFS)
The Discover Student Loan from Discover Financial Services (NYSE: DFS DFSDiscover Financial Services67. 13-0. 46% Created with Highstock 4. 2. 6 ) is a private student loan designed to fill the gap between a student's savings, scholarships, and federal financial aid and the total cost of attending college. Students can use the proceeds from a Discover loan for tuition, housing, books, meals, and other qualified expenses. Discover covers up to 100% of school certified cost of attendance and offers flexible repayment plans, but private student loans come with many provisions that affect borrowers.
How the Discover Student Loan Works
For many students, college savings, federal grants, and loans are not enough to cover the rising cost of attending college. From the 1980s through the 2010s, college tuition has increased nearly three times the rate of inflation. When a student sees a funding gap between available money and the total cost of attendance, a private student loan is one way to shore up the difference.
Private student loans are unsecured loans offered by private lenders, as opposed to government student loans, which are backed by the government. Because private lenders like Discover lack this support, their risk is greater. To compensate for higher risks, they charge higher interest rates. In addition, obtaining a private student loan requires a good credit score. A student with limited or poor credit must apply to a qualified cosigner to be approved.
The Discover Student Loan includes a variable annual percentage rate (APR) based on 3-month LIBOR. This rate ranged from 3.49% to 8.99% in August 2016, based on credit. Alternatively, a student can choose a fixed rate that has a higher APR range of 6.4% to 11.49%, but offers greater security if interest rates rise in the future. In contrast, the 2016-2017 rate for federal student loans is set at 3.76%.
The repayment period is 15 years and begins six months after graduation or when enrollment falls below half-time. Students have the option to waive their balances while in school by setting $25 monthly.
Advantages over competitors
Some competitors offer private student loans similar to the Discover Student Loan. Perhaps the best known, SLM Corporation (NASDAQ: SLM SLMSLM Corp. 10 + 45 + 0.29% Created with Highstock 4. 2. 6 ), commonly known as Sallie Mae, which grants loans. Which also covers up to 100% of a student's school-mandated cost of attendance.
The Sallie Mae Smart Option student loan offers similar variable and fixed APR ranges for the Discover Student Loan, allowing borrowers to still pay $25 a month while in school. Additional benefits with both loan products include no origination fee and a 25% interest rate reduction for payments made via automatic deduction.
Discover offers a unique feature with its cash incentive for good grades. Students who have at least a 3. Earn 0 GPA, receive a cash refund equal to 1% of the loan amount for the period in which the grades were earned.
Customer reviews
Reviews for Discover Student Loans tend to be positive, with borrowers placing particular emphasis on the lack of an origination fee and a cashback incentive for good grades. However, borrowers warn that with loan terms longer than federal loans, interest rates can add up. In addition, federal student loans offer a variety of assistance programs for offending borrowers, such as. B. income-based repayment, the protections offered by Discover are fewer in number and less extensive. For these reasons, reviewers recommend that students maximize their federal student loans before considering a Discover Student Loan or other private loan.
In 2015, Discover ran into controversy for its student loan product. The Consumer Financial Protection Bureau (CFPB) ordered the company to repay $16 million to borrowers because billing statements were missing and borrowers could not provide the correct information to discount their taxes. Borrowers should exercise vigilance to verify that their account is correct and that they receive all the tax deductions to which they are entitled at tax time.