(Editor’s Note: This article is about the CommonBond.co private student loan review, if you have existing student loans you want to consolidate, be sure to check out our reviews on CommonBond consolidation and refinance)
CommonBond has been in the consolidation and refinancing business for a number of years now, but they only recently started directly lending private student loans to borrowers.
The CommonBond approach to private student loans seems to be to make an alternative better than the Parent PLUS loans offered by the federal government. In some ways they are successful, but in other ways they fall short of what borrowers should expect.
CommonBond offers private loans with 5, 10, and 15 year repayment terms. They offer both fixed-rate loans as well as variable-rate loans. Interest rates start at 2.93-8.77% APR on the variable-rate loan while the fixed-rate loan range is currently 5.50-9.67% APR. The APR factors in a 2% loan origination fee that we will discuss in a little more detail later. There are no pre-payment fees associated with the loan.
As far as repayment is concerned, borrowers have four options. They can deferment payment until they have been out of school for six months, they can make a fixed payment of $25 each month, they can make interest-only payments during school, or they can immediately begin repayment from the time they borrow the loan.
Finally, CommonBond requires all applicants to apply with a co-signer. CommonBond does specify that the borrower is eligible to apply for a co-signer release after 2 years of on-time payments.
Loan Origination Fees and APR
Many private student loan lenders offer student loans without an origination fee. Comparing a loan with an origination fee and one without can be difficult, but looking at the APR on both loans is the closest to an apples to apples comparison.
APR math can quickly get complicated, but the idea behind it is that if you factor in the fees, and make all of the scheduled payments over the life of the loan, the APR is the actual interest rate you will pay. In theory this allows borrowers to compare a CommonBond student loan to a rival student loan where their is no origination fee.
The problem with this approach is that it assumes you will make minimum payments over the life of the loan. Upon graduation, many borrowers elect to pay off their loans quickly to reduce the amount they spend on interest. Borrowers who go this route would be better off opting for a no origination fee loan if the APRs on two rival companies are identical.
If you are someone who plans on quickly repaying their student loans, origination fees should be avoided if possible.
Ultimately, if two loans have very close APRs, we would encourage the borrower to opt for the loan without an origination fee.
CommonBond vs. Parent PLUS loans
As we initially noted, CommonBond is setting this loan up to be an alternative to a Parent PLUS loan. On a Parent PLUS loan, the origination fee is currently 4.276%, so the 2% CommonBond fee is much lower.
CommonBond also offers interest rates much lower than those offered on a Parent PLUS, so from a dollars and cents perspective, CommonBond may be the better option.
However, we should note that their are certain borrower protections that come with Parent PLUS loans that CommonBond does not offer. This would include Income-drive repayment and loan forgiveness. The only income-drive plan that a Parent PLUS loan can qualify for is the ICR plan, and it is the most expensive of all the income-driven plans. That being said, if both the Parent and child are unable to make payments, ICR does offer some borrower protections. We explored this topic in more detail in our article on Private Student Loans vs. Parent PLUS loans.
Ultimately, for parents with no doubt about their ability to repay the loan per the borrower agreement, CommonBond does compare favorably.
While CommonBond may stack up nicely against a Parent PLUS loan, borrowers cannot look at this comparison in a vacuum. If someone is considering a private loan in place of a Parent PLUS loan, there are a number of private lenders out there, many of whom do not have origination fees. In order to find the best student loan option, borrowers should shop around, to find the best rate available. Even with a 2% origination fee, the rates offered by CommonBond are quite competitive, so checking your rate with CommonBond is time well spent.