Managing Student Loans

Any student preparing for college will be aware of the necessity of obtaining loans to pay for the exorbitant expenses they are about to take on. Tuition, accommodation and essentials such as text books all need paying for. Students will first look to obtain Federal student loans which are the cheapest form of long term borrowing available. When a shortfall occurs between Federal assistance and necessary costs, a private loan may well be the final option.

One very sensible way in which all student loans operate is that the student must provide proof of their school and course attendance, and the loans obtained are then paid directly to the college. This prevents the possibility of the student away from home for the first time of blowing the whole terms funds in the college bar in the first week, if not used to dealing with finances.

Private student loans are relatively easy to obtain as banks and institutions want this kind of business. Student loans are designed to disallow the possibility of default and this works in the banks favour. Most students will need to have their loan endorsed by a co-signer who has an excellent credit rating, again reducing the risk on such lending. If the student themselves fail to make the repayments then the co-signer is responsible for doing so. The banks also consider that at the end of a college education the student themselves are likely to be responsible enough to handle repayment.

To obtain a private student loan you will need a letter of accreditation from the school, the endorsement of your co-signer, and the usual financial checks on the student, who is most likely not to have a credit history due to youth. It is important that the student takes as much guidance as possible before signing on the dotted line for a particular loan. The one offering a free drinks bag is not necessarily the best financial choice to make and this is a long term loan which will be signed for.

The key things to look for with any loan are the interest rates, possible fees, repayment schedules, prepayment possibilities, and penalties. Loans vary hugely in style, some allow for consolidation whilst others don’t. It may not seem a big difference when the loan is obtained but four years down the line it will when one option means lower repayments. Some private loans must have the interest paid whilst the student is still in school, others defer it. Consider which method is more viable for you, as deferred interest will accumulate and add to the principal loan. Always combine the cost of fees and interest rates together, as fees may be payable at the end but will also accrue interest for the duration of the loan.

Always take independent advice if these kind of financial terms are unknown to you. The lender after all will have a vested interest in promoting his own loan and it is very important that each feature is understood. As this may well be the student’s first dealings with a large financial obligation take advice from the school financial officers, responsible adults and even other bankers. What may appear as a small difference on paper when you commit to a loan could well prove to be a costly mistake if the time is not taken to acquaint oneself with all the terms involved. Always remember that the lender will not be impartial and think long term before you sign.