Discover Student Loans Review

Written by

Louis DeNicola

Posted

January 8, 2018

In 2010, Discover bought the Student Loan Corporation and a private student loan portfolio from Citibank, greatly expanding its presence in the student loan industry.

A quick note about private student loans before we jump into our review of Discover’s offerings:

Private student loans should often be the final step in funding your higher education. If you find your savings, scholarships, grants and federal student aid aren’t enough, you can use these loans to fill the gap.

Unlike federal loans, private student loans are credit-based, meaning your interest rate and eligibility can depend on your credit, and you may need a creditworthy cosigner if you can’t qualify on your own. Private student loans can also have a higher interest rate, less flexible repayment options and more severe consequences if you have trouble making payments than federal student loans.

If you are going to take out private student loans, it’s important to compare options among lenders and loan types. There’s no best lender or loan for every student: The varying benefits and terms can accommodate different students’ needs.

Table of contents

What is Discover?
Discover student loans in a nutshell
How Discover compares with  other lenders
Can you refinance through Discover?
What borrower is Discover best for?
Taking a closer look at the online platform
What to expect during the application process

What is Discover?

Discover Bank is a traditional financial services company that offers a wide range of products, including bank accounts, credit cards and loans.

Among its loan products, Discover offers private student loans. It also refinances and services student loans.

The company has run into trouble in the student loan space. In 2015, the Consumer Financial Protection Bureau (CFPB) ordered Discover to pay a $2.5 million penalty and pay $16 million to consumers, due to illegal private student loan servicing and debt collection practices.

Types of student loans Discover offers

Discover has seven private student loan programs. While most of the terms and benefits are the same across all the programs, there are some differences, with things like annual APR ranges, loan amounts and eligibility requirements.

  • Undergraduate. For students who are pursuing a bachelor’s or associate’s degree.
  • Graduate. For students who’re seeking a degree in a graduate program.
  • MBA. A student loan for students at business school.
  • Health professions. These are for graduate students, and they cover a range of focuses, including: osteopathy, dentistry, nursing, pharmacy, physical therapy and veterinary medicine.
  • Law school. A student loan for students at, where else, law school.
  • Residency. Residency loans are for recent medical school graduates or students in their final year of graduate health profession studies. They can use the money to help pay for board exam review, relocation expenses and the cost of an internship or residency program. Loan limits are up to $5,000 or $18,000 depending on focus. (The minimum amount is $1,000 for each loan.)
  • Bar exam. Recent law school graduates, or students in their final year of a graduate law degree program, can borrow up to $16,000 for bar exam prep.

Discover student loans in a nutshell

Undergraduate Graduate MBA Health professions
Fixed APR range* 4.49%* – 12.39%³ 4.99%* – 12.39%³ 4.99%* – 10.74%³ 4.99%* – 7.99%³
Variable APR range*^ 1.24%* – 10.99%³ 1.99%* – 11.37%³ 1.99%* – 9.99%³ 1.99%* – 7.14%³
Loan terms offered 15 years 20 years 20 years 20 years
Fees No application, origination or late fees. No application, origination or late fees. No application, origination or late fees. No application, origination or late fees.
Loan amount $1,000 up to the school-certified college cost (minus other aid)¹ $1,000 up to the school-certified college cost (minus other aid)¹ $1,000 up to the school-certified college cost (minus other aid)¹ $1,000 up to the school-certified college cost (minus other aid)¹
Repayment plans Full deferment, fixed $25 or interest only monthly payments Full deferment, fixed $25 or interest only monthly payments Full deferment, fixed $25 or interest only monthly payments Full deferment, fixed $25 or interest only monthly payments
Deferment period Six months Nine months Nine months Nine months
Cosigner option/release Cosigners accepted, but no release option Cosigners accepted, but no release option Cosigners accepted, but no release option Cosigners accepted, but no release option
Product Benefit Cash reward for good grades if you get at least a 3.0 GPA2 Cash reward for good grades if you get at least a 3.0 GPA2 Cash reward for good grades if you get at least a 3.0 GPA2 Cash reward for good grades if you get at least a 3.0 GPA2
Law school Residency Bar exam
Fixed APR range* 4.99%* – 9.49%³ 6.99%* – 8.99%³ 7.74%* – 12.39%³
Variable APR range*^ 1.99%* – 8.37%³ 5.12%* – 7.88%³ 6.12%* – 11.37%³
Loan terms offered 20 years 20 years 20 years
Fees No application, origination or late fees. No application, origination or late fees. No application, origination or late fees.
Loan amount $1,000 up to the school-certified college cost (minus other aid)¹ $1,000 to $18,000, depending on your program¹ $1,000 to $16,000¹
Repayment plans Full deferment, fixed $25 or interest only monthly payments Full deferment or $25 monthly payments Full deferment or $25 monthly payments
Deferment period Nine months Up to nine months Up to nine months
Cosigner option/release Cosigners accepted, but no release option Cosigners accepted, but no release option Cosigners accepted, but no release option
Product Benefit Cash reward for good grades if you get at least a 3.0 GPA2

Rates are as of July 1, 2020.
¹Aggregate loan limits apply.
²Students who get at least a 3.0 GPA (or equivalent) can get a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Please click here for applicable terms and conditions.
³Lowest APRs shown for Discover undergraduate and graduate student loans are available for the most creditworthy applicants and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments. Lowest APRs shown for Discover Residency and Bar Exam Loans are available for the most creditworthy applicants and include a 0.25% interest rate reduction while enrolled in automatic payments. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable margin percentage. For variable interest rate loans, the 3-Month LIBOR is 1.00% as of April 1, 2020. Discover Student Loans may adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Our lowest APR is only available to customers with the best credit and other factors. Your APR will be determined after you apply. It will be based on your credit history, which repayment option you choose and other factors, including your cosigner’s credit history (if applicable). Learn more about Discover Student Loans interest rates.

What it takes to qualify with Discover:

The eligibility requirements for Discover Student Loans are generally the same across their seven private student loan options.

It is important to note that if taking out a Residency loan, you must either be in your last year of study at an eligible graduate health profession program, or have graduated in the previous 12 months. If taking out a loan for the Bar Exam, you must either be in your last year of study at an eligible graduate law program, or have graduated in the previous 6 months.

Eligibility Requirements
Credit requirement Must pass a credit check
Age requirement 18 years old, or 16 with a cosigner
School/state eligibility Over 2,000 nonprofit undergraduate and graduate schools
Available to residents of any state
…additional requirements Be enrolled at least half-time and seeking a degree at an eligible school.

 

How Discover compares with other lenders

Compared to other private student loan lenders, Discover excels in some areas and falls short in others. Notably, it offers a wide variety of specific loan types with varying APR ranges. If you’re going to law school or pursuing one of the listed medical professions, Discover’s specialized student loan program may be able to offer you a lower interest rate than some other general graduate school loans.

The cash back reward for good grades, multiple hardship options, lack of fees, low minimum loan amount and simple online application process also make it a contender as one of the top private student loan companies.

However, if you want to get a lower interest rate by choosing a short term, such as five or eight years, you’ll need to get a loan from a different lender. Discover Student Loans also may not be the best choice if you need a cosigner, as there isn’t a way to release your cosigner without refinancing your loans later.

Advantages of Discover Student Loans

No fees. Discover doesn’t charge origination, application, early payment, late-payment or returned-check fees. Many lenders don’t charge origination, application or early payment fees, but the lack of late-payment or returned-check fees is less common.

Two bonus perks. Many private and federal student loans offer a 0.25% interest rate discount if you sign up for autopay. Discover additionally offers a cash reward on most of its loans for students who get at least a 3.0 GPA during an academic term that the loan covers. If your loan covers multiple terms, you can receive the cash reward if either the combined GPA or your GPA during one of the terms is at least equivalent to a 3.0.

To receive your reward, you need to submit a redemption form within six months of the end of the qualifying academic term. Discover may request verification documents, and will then send you a check for your reward amount.

Loan discharge due to death or permanent disability. If the worst strikes and a primary borrower dies or becomes permanently disabled, Discover will forgive the remaining loan balance. Some other lenders won’t discharge the debt during these circumstances, which could wipe out savings that you’re planning to pass on or leave a cosigner with the debt.

Accepts international students. If you’re an international student studying in the U.S., you may still be able to take out a Discover student loan if you have a U.S. citizen or permanent resident cosign the loan with you. Your cosigner’s credit can impact the rate you’re offered, and you’ll still need to meet other eligibility requirements.

Full deferment repayment plan. You can opt to defer your entire payment until six to nine months after you graduate or drop below half-time enrollment. Alternatively, you can sign up for a $25 monthly payment that starts after your loan is disbursed, or you may make interest-only monthly payments while in-school and during your grace period and receive a 0.35% discount.

Although full deferral may increase your overall cost of borrowing, it may be better than signing up for a payment plan if you think you’ll have trouble making payments while in school. Even if you decide to defer your payments, you can still make early payments without a penalty.

Post-graduation deferment and forbearance options. Whether you return to school, lose your job, join the military or take a public service job, you may have trouble making your student loan payments. Discover offers multiple hardship payment options, including temporary interest rate reductions, reduced payments, extended grace periods and postponement of payments.

Discover services the loan. Some student lenders manage the application and funding process, but then they hand your loan over to a different company to collect payments and handle customer service questions (collectively known as servicing). Discover controls the lending and servicing of its student loans.

Drawbacks of Discover Student Loans

No cosigner release option. Adding a cosigner to your application can lower your interest rate, and may even be a necessity if you can’t qualify for a loan on your own due to your credit. However, Discover doesn’t give you an option to release a cosigner from the agreement at a later date unless the primary borrower dies or becomes permanently disabled. In contrast, some private student lenders let you release a cosigner after you make a series of on-time full payments and pass a credit check.

Only one loan term. Your loan term, the number of years you have to repay the debt, can impact your monthly payment and interest rate. Discover only offers a 15-year term for undergraduate loans, and a 20-year term for other types of student loans, which may be longer than you need. Some other student loan lenders have a variety of term lengths that you can choose from when taking out a loan.

No soft credit check preapproval. When you apply for a loan and the lender checks your credit, the resulting hard inquiry can hurt your credit score. It generally only has a minor impact which fades over time, but you may still want to limit your hard inquiries. Some other lenders make only soft inquiries that don’t affect your credit score.

Refinancing student loans through Discover

In addition to offering loans to pay for school, Discover has a Student Loan Consolidation product that you can use to refinance your student loans after graduating. When you refinance a loan, you’re taking out a new loan to pay off current debts.

You can combine multiple loans into one, making it easier to manage your payments, and you may be able to get a lower interest rate that could lead to lower monthly payments and overall savings.

Beyond the basic pros and cons of refinancing student loans, here are a few specifics on Discover’s offering.

Advantages

Discounts and fees. Just like with its private student loans, Discover offers a 0.25% interest rate reduction when you sign up for autopay, and it doesn’t charge any application, origination or late-payment fees.

Don’t need to graduate. You can refinance your student loans with Discover even if you didn’t complete a degree program. In fact, you can refinance while you’re still at school if you want. But if you do, you’ll have to start making payments about 30 to 45 days after Discover disburses your new loan.

Disadvantage

Only a few loan terms. While you can choose between a fixed- or variable-rate loan, Discover only offers 10- and 20-year terms with student loan refinancing. Other refinancing companies offer a range of terms, with some as low as five years.

How to qualify

To qualify for Discover’s student loan refinancing, you’ll need to meet the following criteria:

  • A U.S. citizen or permanent resident
  • At least 18 years old
  • Pass a credit check and have verifiable income. You can also add a cosigner to your refinanced loan.
  • Be the primary borrower of the loans
  • Have at least $5,000 in student loans, but no more than $150,000 in aggregate student loan debt

You can choose which loans you want to refinance and Discover lets you consolidate private and federal student loans into a single, new private student loan. Be careful, though: When you refinance your federal student loans you lose access federal protections, forgiveness programs and repayment plans.

Also, you can only consolidate student loans that you took out to pay for an eligible undergraduate or graduate program while you were enrolled half-time or more. You can’t include post-graduate loans, such as bar exam and residency loans.

What borrower is Discover best for?

It’s always important to compare multiple lenders before taking out a large loan, as the terms you’re offered and the fine-print benefits or restrictions can vary from one lender to another.

You may want to include Discover in your list if you’re considering a long-term loan (15 or 20 years), are OK without having a cosigner release option and think you’ll be able to maintain a 3.0 GPA.

Also, consider it if you’re going to law school or pursuing a health profession, as Discover’s APR range may be lower than what you can find on general graduate school loans.

Taking a closer look at the online platform

In spite of having so many different loan programs, Discover does a good job of sharing the information in a clear and consistent manner. Each loan program’s homepage tells you about the lack of fees, discount and repayment options and the steps to take out a loan. They also have FAQ sections broken down by features and repayment.

Aside from the application process, almost all the information in this review came from those home pages, although there’s also a helpful single page that has an overview of all the student loan products and features.

The same uniformity is present during the application process. And almost every part of the application has a small question mark symbol, with additional information on what you need to fill out, where to find the information or what to do if you’re not sure of an exact number.

Overall, it’s easy to find details about each loan product, and the application process is fairly straightforward.

 

What to expect during the application process

There are three pages in the student application process, each with several subsections, as well as a few final steps you’ll have to take after submitting an application. The steps below are for an undergraduate student loan, but the process is similar for other loan types.

Page 1: School and Student Details

School you’re planning to attend. Enter your school’s name and the state it’s in. If you can’t find your school during this first step, then Discover doesn’t offer student loans for students of that school. Also choose a loan type, such as undergraduate or graduate loan.

Student information. Share basic information about yourself, including your name, email address, phone number, date of birth, citizenship status and Social Security number (if you have one).

Page 2: Degree and Loan Details

The second page is broken into four sections:

Anticipated degree information. You’ll enter which degree you anticipate receiving and your expected graduation date. You also have to share your current grade level, enrollment status and cumulative GPA.  

Loan information. Share your anticipated cost of attendance, which Discover will suggest based on your school choice if you’re unsure. Also fill in your estimated financial aid, which includes money from friends and family, federal loans, grants, scholarships and savings. Your requested loan amount can’t be higher than the difference between these two numbers.

You’ll also have to specify which academic period you want the money to help pay for, and the start and end dates of that period. The start date can’t be more than six months away.

Student address information. Complete and submit your permanent address. You can also share a temporary address, such as an in-school address, and indicate which address you’d prefer Discover to use.

Student financial Information. You’ll have to enter your employment status, employer name, occupation, the student’s gross income and how much of the income is nontaxable (which could include Social Security income, disability and welfare benefits). If you have additional income or assets, such as investments or money in a retirement account, you can choose to share those if you want.

In addition to employment and income information, you’ll have to enter the student’s housing status (such own, rent or live on campus) and his or her monthly housing payment.

Page 3: Terms and Disclosures

Application and solicitation disclosures. You have to view and acknowledge that you’ve read the application and solicitation disclosures.

The disclosure will tell you your interest rate range, and interest rate cap if you’re getting a variable-rate loan. It also verifies that the loan doesn’t have any fees, the loan terms, how choosing different repayment plans affects your overall cost, and other important small-print information.

Electronic communications terms and conditions. In addition to disclosures about your loans, you can choose to receive information about your loans via email. You can read the terms of the arrangement and agree, or disagree, to receiving electronic communications on this page.

Credit check and other verification. The final step before submitting your application is to give Discover permission to obtain your credit report and to request information about you from your employer, bank, school and other sources to verify your eligibility for the loan. When Discover requests your credit report, the resulting hard inquiry could have a minor negative impact on your credit score.

Choose a loan type

If you’re approved without a cosigner, you can now choose between a variable- or fixed-rate loan and between the three repayment plans. Adding a cosigner may lower your interest rate, and if you want to add a cosigner, you should do that before accepting one of the loan offers.

Alternatively, you may be denied, or you could be approved for a loan, but only with an eligible and creditworthy cosigner. If that’s the case, you’ll have to add a cosigner to continue the loan process.

Add a cosigner

You can login to your account or access your application with your access code and then choose “add cosigner” to see your cosigner key. The key links the cosigner’s application with yours and allows him or her to start filling out the cosigner application. You can also give the cosigner’s email address to Discover, and Discover will email instructions to the cosigner.

Sign and submit the Promissory Note

If Discover approves you for a loan when you submit your application, you will find out if you are eligible for a multi-year option (undergraduate loans only). Your next steps are to review and sign the Promissory Note.

You can sign the Promissory Note online, or mail a signed copy. You’ll also have to sign a Self-Certification Form and submit it electronically or mail it.

Discover will usually contact your school directly to request the school-certified cost of attendance. The process can take three to five weeks, and Discover may alter your loan amount if it finds your cost of attendance is lower than you estimated. Discover will then disburse undergraduate and graduate school loans directly to your school. Residency and bar study loans are sent to the borrower.


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