Student Loan 5-Cap Rating Methodology

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Mark Kantrowitz

By Mark Kantrowitz

June 10, 2020’s Student Loan 5-Cap Ratings present an objective evaluation of the advantages and disadvantages of each student loan, relative to all other student loans, based on many factors that are important to borrowers.

There are many challenges when trying to compare different student loan programs, in part because there is significant variation in the options offered by each loan. The most important differences are in the cost and repayment terms. has developed a methodology for comparing loans on an apples-to-apples basis using an objective set of criteria. The methodology is data-driven and formulaic, with no subjectivity in the scoring of a loan program. 

Before choosing a lender and borrowing a student loan, we strongly recommend that you review all of the lender’s loan information, including the disclosures mandated by the Truth in Lending Act (TILA). Be sure to compare both the monthly loan payment and total loan payments for the same repayment term. 

What the Ratings Mean

5 Excellent
This is an excellent loan program that offers low cost, broad eligibility criteria, outstanding repayment terms, attractive benefits (such as generous loan discounts and rewards) and strong customer service. There are few, if any, weaknesses noted in the loan program.
4 Good
A good loan program with many benefits for the borrower and positive loan attributes. If it has any significant weaknesses then it also has some particularly good things to recommend it.
3 Fair
A fair loan program that offers valuable benefits but may have some limitations or concerns that borrowers need to know.
2 Poor
A loan program that will work for many people who fit the “target” profile but contains potentially significant problems or uncertainties that can hurt the unsuspecting borrower.
1 Not Recommended
A loan that is too expensive, has limited repayment options, has too many eligibility restrictions, provides inferior customer service and/or involves other problems. Changes are necessary for the loan program to compete effectively against other loan programs.

Scoring and Weighting

The design of the scoring methodology is intended to identify which loans are best for the borrower by aligning the scores with what’s in the borrower’s best interest. 

Many details are omitted from this description of the methodology to prevent lenders from trying to manipulate their ratings. If a lender wants to improve their rating, they should reduce costs, improve repayment options and add other features of benefit to borrowers. 

The dozens and dozens of variables we evaluate for each student loan are grouped into four categories: Cost, Availability (Eligibility), Flexibility (Repayment Options) and Customer Service. The category scores are combined to yield an overall composite score. 

  • Cost. The cost category is based on about two dozen variables, including interest rates, loan fees, interest capitalization frequency, in-school payment options, discounts and rewards. 
  • Availability (Eligibility). The availability category is based on about two dozen variables, including credit underwriting criteria, minimum credit score thresholds, income thresholds, maximum debt-to-income ratios, cosigner requirements, cosigner release options, enrollment status limitations, degree level limitations, field of study limitations, year-in-school limitations, annual loan limits and aggregate loan limits.
  • Flexibility (Repayment Options). The flexibility category is based on about a dozen variables, including repayment plans, repayment terms, grace periods, deferments, forbearances, death discharges and disability discharges.
  • Customer Service. The customer service category is based on about a dozen variables, including self-service options, call center characteristics, popularity and complaint rates.

Each category is scored on a scale from 1 to 5 Caps based on a weighted average of the scores of individual variables and groups of variables.

Some of the variables are categorical in nature and some are numerical. Categorical variables are implemented as additions and subtractions to the category ratings. Some of the numerical variables are treated as categorical because the eligibility is limited and not universally available. 

Scoring the Cost Category

The approach for scoring the cost category involves calculating the net cost per dollar borrowed assuming a level 10-year repayment term, after taking interest rates, loan fees, discounts and other factors into account. For example, the loan amount is increased by the fees so that the net disbursement, after subtracting the fees, is the same.

We use a standardized 10-year repayment term because differences in repayment terms can lead to a comparison that is not on an apples-to-apples basis. For example, monthly loan payments decrease and total payments increase with a longer repayment term.

We recognize that fixed interest rates may depend on the length of the repayment term and adjust accordingly. 

Variable rates are converted into equivalent fixed rates using an index rate trajectory model. 

A half-cap difference in the cost rating roughly corresponds to hundreds of dollars difference in the net costs per $10,000 borrowed over a 10-year repayment term.

Calculating the Overall 5-Cap Rating

The raw category scores are combined using a weighted average to calculate each student loan’s Overall 5-Cap Rating. The cost category is overweighted in the Overall 5-Cap Rating, counting it double, because cost is more important than the other categories for most borrowers. 

For example, the overall 5-Cap Rating might be defined by this equation:

Overall Rating formula

In effect, the overall rating is a weighted average of a set of weighted averages.

The raw scores are rounded to the nearest half-cap increment for display purposes. 

Best Student Loan Rankings

The web site features several “best student loan” rankings based on specific variables. These include the following:

  • Best Rewards
  • Best for Borrowers without a Cosigner
  • Best Cosigner Release Options
  • Best Flexibility for Repayment
  • Best Deferment Options
  • Best Customer Service
  • Best Interest Rates
  • Best Bank Lender

There are also rankings based on subsets of the overall ratings, based on the type of loan program:

  • Private Undergraduate Student Loans
  • Private Graduate Student Loans
  • Private Parent Loans
  • Private Refinance

These rankings are sorted by the specific sub-score. Ties are broken using the overall rating, based on the underlying raw score. 

Personalization of 5-Cap Ratings

Personalized 5-Cap Ratings are based on borrower characteristics and preferences provided using a Personalized 5-Cap Rating tool. 

First, the list of lenders is filtered by borrower-specific characteristics, such as location, citizenship, degree level, enrollment status and type of college.

Next, the Overall 5-Cap Rating is modified by adjusting the weights for each category based on borrower preferences. 

The list of lenders is then sorted according to the personalized overall rating.


The Student Loan 5-Cap Ratings and other information we provide are for information, education and entertainment purposes only. does not provide legal, financial, investing, accounting or tax advice. The information and tools published on this website are general in nature and may not apply to your specific circumstances. You should seek specific guidance from a qualified legal, financial, investing, accounting or tax professional.  

The loan interest rates, terms and other information are subject to change at any time.  We update the loan information periodically and whenever we receive updated information from a lender. We are not able to include all possible lenders in this analysis, particularly when they do not make the necessary data available.

You assume the sole responsibility for evaluating the merits and risks associated with the use of the Student Loan 5-Cap Ratings and any information provided on this web site.

In exchange for using this web site, you agree not to hold Saving for College, LLC liable for any possible claim for damages arising from any decision you make based the Student Loan 5-Cap Ratings and any information provided on this web site.

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