Take the time to do your homework before borrowing a private student loan

Now is the time to start researching private loans for students.  Most colleges will be distributing tuition bills for the spring semester in the middle of December. If you need to borrow to help pay for your tuition, take the time now to explore your options and give yourself the time needed to make an informed decision.

Private student loans are intended to fill the gap between what financial aid, federal student loans and your or your parents contribution won’t cover.  Before you consider funding your education with a private student loan, you should exhaust all lower cost borrowing options.  What does that mean?  Generally, federal student loans are less expensive than private student loans and can offer more flexible repayment options.  If your parents wish to borrow on your behalf, for example, they should consider a Plus loan before using a private student loan or even a credit card.  Alternatively, your parents might consider a home equity line of credit from their bank.  Interest rates are exceptionally low now and they may be able to borrow at a rate even lower than that offered by federal student loans.

Here are 5 things to consider when researching private student loans:

1. Low interest rate/APR — private student loans generally require the student to have a creditworthy co-signer.  A well qualified co-signer will result in a lower interest rate
2. Co-signer release — see if the loan program allows your co-signer to be released after you make a number of on-time payments
3. Hardship — check to see how the loan program handles any kinds of hardships you may encounter while repaying your loan.  For example, unemployment during repayment
4. Fees — find our and compare the fees charged to borrow your private student loan.  Most of the time, you will finance these fees but bear in mind they add to the principal amount you borrow
5. Borrow only what you need — besides exhausting federal student loan options, you should do your best to only borrow what you really need.  Be sure to take applying for scholarships seriously.  There are many contests and scholarships with short essays that do not require a lot of effort.  Differentiate yourself by taking a few extra minutes on an easy-to-enter essay contest and you will really stand out.

To compare private student loan options, use our LoanFinder.  Submit a few basic details about yourself and we’ll help you conduct a search of popular programs.

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You won’t have to crack open a thousand-page book to get a handle on private student loans.

If you have exhausted all federal financial aid, grant and scholarship opportunities, and still find you need additional money for college, a private student loan may be the solution. Unlike federal loans, which require students to attend school at least part-time, a private loan can be used for any number of credit hours and students are not required to complete the Free Application for Federal Student Aid (FAFSA). Keep in mind that students are not guaranteed approval for a private loan and must meet certain criteria. In most cases, students will need the following when applying for a private student loan:

• Social Security Number
• Driver’s License
• Be a U.S. citizen, permanent or temporary resident alien
• Provide employment and income information (annual gross amount, contact information, etc)
• Provide contact information for his/her intended college
• Provide monthly housing/living expense information
• Co-signer (who must provide the same documentation)

Typically, students do not qualify for a private loan without a co-signer. In addition, any permanent or temporary resident alien applying for a loan will be required to have a co-signer, regardless of his/her credit history. According to the Boston Globe, nearly 90 percent of private loans issued have a co-signer. Anyone with a good credit history may act as a co-signer, including family, friends and co-workers. Even if you do qualify for a private loan, you may want to add a co-signer to help reduce your interest rate. Many private loan lenders will allow a co-signer to be released from the loan once a total of 24 consecutive, on-time payments have been made. In some instances, lenders will also forgive the loan if the student beneficiary is deceased or becomes permanently disabled. Always be sure to check with the lender about these provisions prior to having another party sign any loan documents or contracts.

Once the preliminary application has been processed, the lender will more than likely request a Self-Certification Form. The student will need to submit information on his/her tuition, room and board, fees and estimated financial aid being received. The difference between what the student can expect to pay for college and what is being received through federal loans, scholarships and other aid is the amount available for the private loan. Lenders will also contact the college to verify this information, as well.

If you are approved for a private student loan, you can use the funds for any education-related expense. This can include not only those fees typically covered by federal loans, but also food, clothing, parking passes, travel abroad, testing fees, equipment purchases (computers) and even the occasional trip home during breaks. While a private loan can offer more flexibility, keep in mind you may have a higher interest rate and fewer options if you find you cannot make your loan payments on time. Before deciding if a private student loan is right for you, compare offers by various institutions and read the fine print.

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