Discover is a major credit card issuer known for offering both credit and cash back programs. It’s also a large private student loan provider. If you’ve already exhausted the scholarship or federal student loan options and still need funds for school, Discover might be a viable option.
Before visiting their website and taking a look at their various programs, you might want to do some research and get informed on all the pros and cons of a Discover student loan.
What Kind of Loans Does Discover Offer?
Discover can approve you for up to $200,000 in educational loans, which is great if you’re attending a high-priced program such as for medicine or law. In fact, they have specific loan programs geared for those exact specialties; students who are about to take the bar exam may also qualify for a loan to cover their living expenses while they study for it. Discover’s interest rates can vary greatly; for highly qualified borrowers the rate may currently be as low as 3.87 percent. In addition, their loans come with zero fees for origination, application, or even late fees.
Their loans can also cover far more than just tuition. Anything related to the cost of attendance can be paid for with loan funds. That means books, meal plans, and dorm residence fees as well. Discover even maintains a scholarship database on its website if you’d like to augment your student loans with money you don’t have to pay back.
One of the best perks of being a borrower with Discover is the cash back option. If you keep good grades, Discover will pay you 1 percent back in cash for each new undergraduate or graduate loan. If you’re smart you can turn around and put that money back into your loan.
If you graduate and send them a picture of your diploma, Discover will give you a 2 percent cash award as well. That’s on top of the .25 percent discount they take off your interest rate if you set up automatic payments from your bank account.
One last benefit is that Discover can consolidate both private and federal loans, meaning you can take all your loans to Discover and roll them into one loan with one monthly payment.
How Hard is it to Get a Discover Student Loan?
Because Discover is a private lender, its loans are based more on creditworthiness than federal programs which look more at financial need. Most students need a cosigner to qualify for Discover loans since many students either haven’t been able to build a credit history or don’t have enough on their history to show creditworthiness.
In order to apply you’ll need to visit the website and go through their application process. You’ll need your personal financial information, and you’ll need to know how much you’d like to borrow. You’ll also need your cosigner’s information – usually this is a parent or grandparent – and their financial obligations, as well as their employment information.
The application only takes about 15 minutes to complete if you have collected the information necessary beforehand. If Discover determines that you and your cosigner have the ability and motivation to pay back the loan, then the approval is rather quick. You’ll also have a variety of options for repayment.
What's the Downside?
Every loan program has fine print and caveats that might end up changing your decision. It’s always best to know those up front, so we’ll take a look at the parts of Discover’s program that you might not find so appealing.
First of all, cosigners are locked into the loan until it’s paid in full. That means if your parents signed the loan with you, even if you landed a good job after graduation and are making those payments yourself, your parents will be tied to that loan until you finish paying it off. This policy also results in that loan affecting both their credit rating and their ability to get credit elsewhere in their lives, such as if they want to buy a new vehicle or home. If you and your parents wanted to get them off the loan as cosigners after you’ve established good payment history then Discover may not be your best option.
Discover loans also have 15-year terms for undergraduate loans and 20 for graduate loans. If you take out a sizeable amount, then that shorter term means a sizeable payment after graduation. The company does allow you to choose whether to make payments during school ($25 fixed), or defer the payments until after the grace period of 6 months after graduation.
What's the Bottom Line?
There are a lot of private lenders out there, and a lot of options for students looking to get the best deal on a loan to pay for school. Discover is one of the largest lenders, and in the course of your research you and your cosigner may decide that it’s your best option. The cash back rewards, low interest rates for highly qualified borrowers, and ability to roll federal loans into a consolidation package might be just what you’re looking for in a loan program.