The 10 Largest Student Loan Companies
Navigating the jungle of student loans can be intimidating. Fortunately, there are companies that specialize in bringing the loans to your doorstep, but even that opens up a whole new Pandora’s Box. Who are these companies? How do they work? What should you know about the student loan industry, and the companies in particular, before sitting down to talk business? Read on to learn more about student loan companies before making a decision, as well as details on the 10 largest student loan companies.
What is a Student Loan Company?
Student loan companies (also known as student loan lenders or servicers) are directly responsible for your student loan. Even if you took out a federal loan (Stafford, PLUS, etc.), you won’t do business with the Department of Education; your point of contact will be with the student loan company on practically everything to do with your loan:
- The student loan company oversees the billing of your loan, i.e., you make payments to them, not the Department of Education.
- You work with the student loan company to choose, or change, your repayment plan.
- If you find yourself in financial straits, the student loan company can educate you on your options and implement them where applicable (loan consolidation, forgiveness, refinancing, etc.).
Those last two points play a critical role in the relationship between you as a student, and the student loan provider as to the go-to entity for successfully staying on top of your repayments. After being approved for a federal loan (assuming you are not in default on a pre-existing loan and have not been convicted of specific crimes), the Department of Education will assign your case to a loan servicer after the disbursement of the loan. The loan servicer will reach out to you with a choice of plans for repayment, but will also welcome you to get in touch with them if (and when) you need to change that plan.
In a worst-case scenario, you may find yourself completely unable to stay ahead of your payments. You may lose your job, suffer an emergency, or take on too much debt. If this happens, it is the student loan company again that you will have to talk to. They will educate you on what your options are, and offer suggestions on the viability of each, all with the goal of keeping you above water (and away from collections agencies) and eventually getting their money back (even if it takes decades).
Student loan companies make their money by the Department of Education paying them a monthly fee for processing your payments and taking care of the loan. The fee is generally quite small, but given the sheer number of students who apply for loans – 12 million, according to the Chronicle of Higher Education and American Student Assistance – the figures rapidly add up, making the student loan industry a very lucrative one. The Congressional Budget Office projected more than $50 billion in profits on student loans in the fiscal year of 2013, as reported by USA Today. ABC 7 News put it into perspective – government services like Freddie Mac charge an interest rate of 4.5 percent, whereas an unsubsidized student loan can run borrowers as much as 6.8 percent.
Protecting Borrowers’ Rights
With this much money at stake (and with how desperately, and unwittingly, people are in taking loans to finance their education), there are laws in place to protect borrowers’ rights. The National Consumer Law Center operates the Student Loan Borrower Assistance Project. The mission of the project is to give students and their families “information about student loan rights and responsibilities.”
Other initiatives include the proposed Student Loan Borrower Bill of Rights Act, sponsored by four Senate Democrats, including Elizabeth Warren of Massachusetts. In summarizing the Bill, Bloomberg Business says the bill focuses on greater disclosure, emphasis on repayment plans, and, crucially, stipulating how student loan servicers must credit accounts in a way that minimizes what a borrower owes (in the case when a student has multiple loans). The Consumer Financial Protection Bureau has identified this as a problem when it comes to private student loans, saying that the servicers’ decision on how to allocate payments on multiple loans “is not always in the consumers’ best interest.” This would be one area in which the Student Loan Borrower Bill of Rights Act would seek to introduce control and possibly regulation.
Specifics of the 10 Largest Student Loan Companies
You probably have heard some of the names on the list of the 10 largest student loan companies. You may be surprised that some of the companies on this list offer student loans. And there may be a couple you’ve never even heard of. The following 10 providers are the key players in the student loan industry. Whether you’ve taken out a federal loan, a private loan, or even a combination, you’re likely going to be doing business with one of these servicers.
SoFi (proper name Social Finance, Inc.) takes a page out of Facebook by combining social media with student loans. It puts students and recent graduates in touch with investors via “school-specific student loan funds,” a process that is known as peer-to-peer lending. SoFi has funded over $5 billion in loans to date and just secured $1 billion in series E funding in late September 2015.
Reporting on SoFi in its first year of business, The Wall Street Journal explains that SoFi works as an “online loan marketplace,” bringing borrowers and student loan providers together and imposing a fee on the loan. Dissatisfaction with “traditional lending,” which has seen the amount of student debt in the United States pass $1 trillion, may place SoFi at the forefront of a new frontier in student loans.
2. Sallie Mae
There is probably no bigger name in the student loan industry than Sallie Mae. Originally known as the Student Loan Marketing Association, Sallie Mae oversees more than $180 billion of debt from over 10 million borrowers. It is the largest student loan provider in the country, and as such, has weathered numerous controversies (ranging from questioning its power as both a lender and a collector and allegedly engaging in deceptive lending practices, the latter case leading Sallie Mae to donate $2 million to a fund that educates potential college students about their student loan options). Nonetheless, Sallie Mae remains the first stop for millions of students and their families as they embark on the process of financing college. In March 2014, the company announced that its customers were more successful in repaying their loans compared to national data provided by the Department of Education.
3. Citizens Bank
Citizens Bank is one of the largest banks in the United States, and thus one of the largest providers of student loans in the country. As such, it offers both private and federal loans for both undergraduate and graduate students. In 2014, the bank introduced a refinancing program that allows borrowers to consolidate their private loans, citing a need to offer a “complete” program to customers whose circumstances change from the time they enroll in school to when they get their first job after graduation.
4. Wells Fargo
As another leading American bank, Wells Fargo also offers to service student loans for graduates and undergraduates. The Charlotte Observer reports that the bank’s portfolio for private student loans grew by 6 percent in 2013, putting it behind only Sallie Mae as the largest provider for student loans in the country. With Discover Bank, Sallie Mae and Wells Fargo are responsible for 75 percent of the private student loans in the United States.
5. Discover Student Loans
Discover sets itself apart from other loan servicers in two ways: it rewards graduates (who select variable rate loans when applying for the loan) for good grades (in the form of a check), and it does not offer an option for borrowers to consolidate their loans. There are no fees for early payment and the competitive fixed and variable interest rates make it a popular choice for students and their families.
SunTrust offers its borrowers variable and fixed interest on private student loans, and charges no origination fees (which some lenders charge upon entering into a loan agreement to cover the cost of processing the loan). SunTrust offers a graduation incentive – 1 percent off your principal if you graduate. Like many other private student loan servicers, SunTrust does not do consolidation of loans (Investopedia reports that this program was suspended), but offers competitive rates to make it a strong contender in the student loan provider arena.
7. LendKey (formerly cuStudentLoans)
cuStudentLoans was a group of 130 non-profit credit unions across the United States that offer a single loan “with common underwriting and pricing,” says Forbes magazine in a report on the new element of a credit union entering the student loan market. While a credit union being a non-profit organization can be of benefit to a borrower, credit unions also have more restrictions for membership than banks do. If you do fit the criteria for membership of a credit union, cuStudentLoans will match you up with one of their 130 credit unions that is the best fit for you. cuStudentLoans actively prohibits their members from consolidating their federal and private student loans, which is a mistake that many borrowers do when they unwittingly try to bring their student debt down to manageable levels.
It’s not just credit unions who are throwing their name into the student loan servicer hat; small banks like iHelp, a national lending program, is partly owned by the Independent Community Bankers of America, putting borrowers (and their loans) in touch with local banks. While a smaller bank like iHelp doesn’t have the same kind of capital as a Wells Fargo or Discover, Bankrate reports that the advantage of working with a bank like iHelp is that they work more closely with their borrowers. This is especially beneficial to “high risk” students – those with poor credit or no co-signer – who would otherwise be turned away by a larger financial institution.
As one of the largest financial services corporations in the United States, with assets of $271 billion, PNC Financial Services also has a stake in student loans. PNC offers variable and fixed rate interest on private loans to graduates and undergraduates. There are a number of different types of loans you can get from PNC, including specific ones for health care and law students. Like other student loan providers, PNC sends the funds of the loan directly to your school and not to you.
Nelnet is one of the 11 loan servicers that have contracts with the United States government, up from just one servicer in 2008, according to US News & World Report. It is a significant player in the student loan industry, having $8 billion in assets and $2 billion in student loans, and it provides servicing for $25 billion in student loans annually. Nelnet has over 50 subsidiaries working across the entire North American continent. Nelnet consults with students who are in the process of paying back their loans and offers them feedback on their progress and the status of their loan.
Selecting the Right Student Loan Company
All the companies on this list – and, indeed, any legitimate student loan company – offer many benefits to the right borrower. It’s tempting to simply compare each provider’s rates, but crucial for consideration are the loan’s terms: What is the length of the loan? Under what circumstances will the loan be forgiven? Will your repayment amount change once you graduate?
Also take into account if the loan servicer is student-friendly and student-savvy. Banks that operate student loan services may not be as focused on your needs and identity as a student, as a lender that is specialized and more oriented towards a student (without the burdens of operating other types of loan services, such as a mortgage). On the other hand, large lenders have vast amounts of capital and resources that could be useful as you negotiate the repayment of your loan.