Student Loan Pricing Tiers Explained: What They Are and What to Expect

If you’re shopping for a private student loan, you’ve probably noticed that lenders don’t always advertise a single interest rate. Instead, you’ll often see a range of rates. So why does one borrower receive a lower rate while another receives a higher one? The answer usually comes down to pricing tiers.

Although the term may sound complicated, the concept is fairly simple. Lenders use pricing tiers to determine the interest rate and terms offered to each borrower based on their individual financial circumstances.

Here’s what you need to know — and what you can do to put yourself in the best position to qualify for a competitive rate.

Are Credit Score Tiers and Pricing Tiers the same thing?

Not exactly. Credit tiers and pricing tiers are closely related, but they aren’t interchangeable.

• Credit tiers generally group borrowers based on their credit score and credit history – for example, Experian outlines the following credit tiers for credit scores:
  • Poor: 300–579
  • Fair: 580–669
  • Good: 670–739
  • Very Good: 740–799
  • Exceptional: 800–850
• Pricing tiers are used by lenders to determine the interest rate and loan terms a borrower may receive. They take credit scores into account, but may also consider income, debt-to-income ratio, payment history, cosigner information and other factors.

In other words, your credit score is one factor used to determine your pricing tier, but your pricing tier or approval aren’t necessarily based on credit alone. Generally, borrowers with stronger financial profiles qualify for lower rates, while borrowers who present more risk may receive higher rates.

What Factors Affect Your Pricing Tier?

Lenders look at the complete picture rather than relying on a single number. Every lender has its own criteria, but some of the most common factors include:

• Credit score
• Income and employment history
• Debt-to-income ratio
• Payment history
• Whether you apply with a cosigner
• The amount you’re borrowing

Students Often Need Cosigners

Many students are just beginning to build their credit and may not have a solid employment history. As a result, lenders may not have enough information to determine how likely they are to repay the loan.

That’s why many students apply with a parent, grandparent, or another trusted adult as a cosigner. Depending on the lender’s requirements, a qualified cosigner may help you:

• Increase your chances of approval
• Qualify for a lower interest rate
• Receive more favorable loan terms

However, it’s important to remember that cosigners are responsible for repaying the loan if the primary borrower cannot make payments.

How Can You Improve Your Chances of Getting a Better Rate?

There are no guarantees, but taking steps to strengthen your financial profile may help you qualify for more competitive rates.

Consider:

• Making payments on time to build a strong payment history
• Reducing outstanding debt when possible
• Applying with a creditworthy cosigner
• Borrowing only what you need
• Checking your credit report for errors

If you’re not applying for a loan right away, these steps can also help you build a stronger financial foundation for the future.

Can Your Pricing Tier Change?

Yes! Your financial situation isn’t set in stone. Your credit score, income, debt and other factors can change over time – and so can the loan options available to you. For example, if your financial profile improves after you’ve graduated and established your career, you may eventually qualify to refinance your student loans at a lower interest rate.

The Bottom Line

Pricing tiers are simply one way lenders evaluate borrowers and determine the rates and terms they qualify for.

Understanding what goes into your pricing tier can help you set realistic expectations when shopping for a private student loan. And remember: don’t just compare the advertised rate range. Compare the actual rate and terms you’re offered, along with the total cost of the loan.

That way, you can make a more informed decision about how to pay for college.

View and compare estimated rates from credit union lenders with our finder tool.