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:
- 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
- Co-signer release — see if the loan program allows your co-signer to be released after you make a number of on-time payments
- 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
- 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
- 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.