Managing Student Loans

Private student loans are available as the last type of financing for college students, when all other avenues have left a shortfall. When a student begins to search for ways to finance a college education there is advice offered by the schools finance officers, together with lots of valuable information online or from the Federal Student Aid.

When the usual avenues of scholarships and Federal student loans still leave a gap between the costs involved and the students needs then it is time to look at private student loans. Any reputable student lender will encourage federal loans as the first option and only offer their own loans to cover the shortfall.

Any reputable lender will expect to see certification from your chosen school to ensure you are in attendance and that the funds borrowed will be to cover the necessary expenses of tuition fees, board and books. They should not be persuading you to borrow more than you need for these essential things. There are many things for the first time student borrower to give consideration to in making a comparison of private student loans.

Co-signer: Even if the student has worked and has a solid credit history it will probably be the case that a preferential interest rate will be offered on the loan if a credit worthy co-signer also becomes involved. The student may be embarking on full time education and that extra signature from someone who has trust in the student could be vital in reducing the interest rate. If you look round there are some lenders who allow the co-signer to detach from co-signer status once the student is a graduate and working themselves.

Prepayment:  It could be that you wish to prepay the loan down or repay early and it is important that these clauses are applicable to the loan, without penalty. You don’t want to be denied the opportunity of reducing the loan whenever you can.

Consolidation:  If the student has a number of loans it will invariably cost less to consolidate them upon graduation. Check to see what kind of consolidation the lender offers with a particular loan, don’t make presumptions which aren’t valid once college days are completed.

Fees:  Often there are disbursement fees attached to student loans. Don’t be taken in if it is advertised they don’t need to be paid at once, they will be added to the principal borrowed and accrue interest for the term of the loan.

Interest rates:  These are a key factor of course determining how much you will repay in total. Unlike your federal loan the interest rates on private student loans may well be variable rather than fixed, so the interest rate can rise at any time. Many loan companies will reduce the interest a little if you make payments by automated debit. If you can find a loan with either a fixed or capped rate then give it extra consideration. Combine the cost of interest rates and fees to get a true picture of the total cost of the loan.

Repayment terms:  Loans differ in their repayment requirements. Some require no payment at all until six months after graduation; others require the interest paying monthly whilst the student is at college, perhaps necessitating a part time job. If the interest is only payable later remember it will be accruing for the term of the loan. Also consider when repayments must start in full as some loans allow deferment if the student goes onto graduate studies.

It is important for the student to make a comparison sheet between different private lenders and decide which are the key points of importance. Neglecting to compare key benefits and rates could cost in the long term so do take time to look for the features which will have the most relevance. Take time to ensure that any remaining questions or doubts are fully clarified. The student cannot afford to err on such a vital financial decision.