Many lenders offer college student loan discounts to encourage borrowers to obtain their student loans from them.

The Higher Education Act of 1965 sets the maximum interest rates and fees on college student loans. However, nothing prevents a lender from charging lower interest rates and any applicability fees. The illegal inducements regulations prevent lenders from providing immediate rebates, which would be akin to paying borrowers for their college student loans. However, most lenders can work around these restrictions by instituting a one month delay in rebate style discounts, or by providing the discounts when the college student loan enters repayment or at other milestones.

Lenders offer college student loan discounts for competitive reasons. Originally, the competition was with the Direct College Student Loan program. However, with the repeal of the single holder rule, lenders are increasingly competing with one other for the highly profitable college student loan market.

Since the repeal of the single holder rule on June 15, 2006, borrowers are more able to consolidate their college student loans with any lender they choose, the originating lenders can face a risk of losing their borrowers to other lenders or financial institutions. In response offering better discounts on unconsolidated Stafford and PLUS college student loans, by instituting discounts that depend on longevity with the financial institution (e.g., interest rate reductions and principal reductions after so many months of repayment and waivers of the last six monthly student loan payments), and by requiring discounts to be repaid if you consolidate with other lender. The originating lenders can usually offer better discounts on unconsolidated Stafford and PLUS college student loans because lender margins are tighter on consolidation college student loans.

What Are Some Of The Most Common Discounts

The most common college student loan discounts include a 0.25% interest rate reduction for having your monthly college student loan payments direct deposited from your bank account (and also often requiring online electronic statement delivery). Many lenders will also waive the origination fees on Stafford College Student Loans. Depending on the guarantor, they can also waive the 1% default fee (previously “guarantee fee”).

Many lenders will also offer additional discounts for making all of your college student loan payments on time. For consolidation and PLUS student loans many lenders offer a 1% interest rate reduction after 36 months of on time monthly payments for as long as you continue to make the on time payments. The on time payments must be consecutive (no skips) and start when the college student loan enters repayment. A few lenders will also offer a repair option, which resets the on time payment clock, but most lenders require all the initial monthly student loan payments to be on time. For a Stafford college student loan, the most common discount will involves a 2% interest rate reduction after 48 months of on time monthly student loan payments for as long as you continue making on time payments. Recently the trend is to replace these interest rate discounts with principal reductions after you have reached a milestone, such as 3.33% principal reduction after 33 months.