Student Loans from Discover
Discover has some excellent interest rates, but their advertising seems a bit misleading in a couple places.
Discover undergraduate student loans are among the very best. Discover combines excellent interest rates with innovative features to create a solid private student loan option. Unfortunately, Discover loans do come with some red flags and we think some of their promotional materials are a bit misleading.
Ultimately, it is the low interest rates that make Discover one of the better private loan lenders on the market.
(Note: Borrowers with existing student loans who are looking to refinance should read our Discover student loan refinance review)
Discover Undergraduate Student Loan Basics
|Discover Student Loans Review|
|Loan Types Offered:||Fixed and Variable|
|Best Variable Rate:||4.24%|
|Best Fixed Rate:||5.49%|
|Repayment Length:||15 Years|
A quick glance at the table above and it should be obvious that Discover has solid interest rates. However, to truly compare interest rates, borrowers should also consider the repayment length. Many lenders have low interest rates on a 5-year loan. When these lenders advertise rates, it is the low-interest short-term loan that gets the most attention. Discover doesn’t bother with a 5 or 10 year loan like most other lenders. The only repayment length offered by Discover is 15 years.
Only offering a longer loan is a smart approach. The vast majority of borrowers will want they lower payments from extended repayment. Borrowers can always pay extra and pay the loan off early, but those that select a shorter repayment length will be stuck with larger payments that can be unmanageable. We really like that Discover sticks with 15-year loans and the rate transparency that it creates.
Like other legitimate private lenders, Discover doesn’t charge any loan origination, application, or prepayment fees. Discover takes the no fee approach one step further and doesn’t even charge any late fees.
Finally, like most other lenders, Discover will usually want a cosigner because most students lack the credit score and income in order to qualify on their own.
The excellent rates offered by Discover is the advantage that should really matter, but there are a couple of perks that may interest most borrowers.
Discount for Interest Payments During School – Borrowers have the option of delaying repayment until 6 months after finishing school, but there is a .35% interest rate reduction for those that make interest-only payments during school. We normally suggest students elect the interest only payments during school because it helps encourage responsible borrowing and spending, but Discover has added an extra incentive.
Cash Rewards for Good Grades – Students who get at least a 3.0 GPA may be eligible for a one-time cash reward. We doubt a lender cash reward will be the difference between a student working hard or slacking at school, but it is a nice little perk for the students who do well.
Customer Service – For years Discover has earned a reputation for solid customer service. The student loan product is no exception.
Multi Year Option – Discover offers a “pre-qualification” for future loans. In theory, this should provide peace of mind to a college freshman to know that they won’t run out of student loans midway through their junior year. On the surface, it is an exciting idea with real potential.
Unfortunately, the multi year option has some major shortcomings…
Red Flags on Discover Student Loans
The multi year option sounds like it provides some future borrowing security, but it really doesn’t.
The first issue is that there still is a soft credit pull that will take place each year. It helps that it won’t affect the borrower or cosigner credit score, but Discover can always decline future loans if something bad pops up on the credit report.
The other big issue with the multi year option is the fact that the borrower must have the same cosigner, attend the same school, AND be working towards the same undergraduate degree. Many cosigners will not be able to sign for all the debt for all the years of college. Moreover, 75% of college students start out as undecided or change majors during their college career.
The glaring limitations on the multi year option mean that it won’t be something that adds any level of certainty to future borrowing. At best, it makes filling out future applications a little quicker.
We also take issue with the Discover comparison table that suggests that Discover is a better option than federal student loans. The reality is that federal student loans are a much better option for the vast majority of borrowers. This is because federal loans include consumer protections like repayment plans based upon income rather than total debt. Federal loans also have a variety of forgiveness provisions. These huge federal advantages are noticeably missing from the Discover comparison table.
We’ve seen other lenders admit that borrowers should first maximize federal loans, and we wish Discover would do the same thing.
The complaints with Discover student loans don’t doom Discover as a lender, but it does mean that borrowers should be careful when making borrowing decisions.
Discover Final Review
Discover has excellent interest rates, solid customer service, and is overall a very good student loan lender.
Even though we like Discover more than most other student loan lenders, it is still important that borrowers shop around to find the best interest rates available for their private loans. Each lender has a different formula for evaluating applications, so the only way to know who has the best rates is to check with multiple lenders. We do realize that not every college student has the time or interest in doing this research, so we suggest applying to Discover through the Credible Marketplace. Going this route allows for checking rate offerings with multiple lenders by filling out just one form.