What Are Student Loan Borrower Benefits or Rewards
Student lenders often offer incentives to make their loan products stand out from the crowd. The industry calls these borrower benefits but they may also be called borrower rewards or incentives. 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 student loans:
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.
Read the fine print very carefully. Borrower rewards 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 reward (for example, if they sell your loan).
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 benefit or rewards. The most common requirements are automatic debit of your monthly payment and a certain number of on time payments.
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.
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.
These benefits or rewards can come in several forms:
Automatic
You
automatically receive the incentive or benefit without having to qualify.
Earned
You must qualify
for the reward first. A common earned reward is an interest rate reduction for setting
up automatic payments; another is an interest rate reduction for a
pre-determined number of on-time payments. Note that “earned” benefits can
sometimes be “un-earned” if you stop meeting the requirements. Ask your selected
lender for details about borrower benefits, including requirements to qualify
and/or to later be disqualified for them.
Examples of borrower rewards can include:
Interest Rate Reduction
This is usually a percentage by which the interest rate on
the consolidation loan will decrease after a certain number of months of on-time
payment.
Principal Reduction
This is usually a percentage of the original principal balance
of the loan that is deducted from the amount owed – earned after a certain
number of months of on-time payments.
Waiver of Fees
This is when the fees normally charged with a loan are not
charged.
Cash Rebate
When the borrower gets a fixed amount of money back (or it is applied to a
payment) after a certain period of time or when certain conditions are met.
Waiver of Final Payments
When the last few payments are forgiven if a
certain condition is met.
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. SimpleTuition’s student loan comparison tool helps you do just that!
