Managing Student Loans

Private student loans are available to students who have a shortfall in their college funding requirements once scholarships, grants and federal student loan options have been exhausted. They should be seen as the option of last resort as they cost far more to service than federal student loans, carrying higher interest rates. However just like federal student loans they require school certification and are meant to cover the costs of tuition, living expenses and books, rather than fund a luxury lifestyle, and they are dispersed directly to the college’s financial aid office rather than to the student.

Many private loan originators will require an FAFSA submission which all students should complete in the first instance to see if they qualify for federal loans, which are not subject to credit checks. Private student loans require credit checks which can be difficult for young students who have no established credit history. Thus the vast majority of private student loans require a co-signer with a good credit history to stand as guarantor for the student loan.

Private student loans are a relatively fast option for students. Most student loans can be approved or declined within a week: some even quicker if no manual underwriting is required. However with the rising tide in student loan defaults lenders are increasingly turning to manual underwriting and base their approval on several factors including the applicants credit and the co-signers credit. Some lenders require co-signers to list the value of their home and liabilities.

The student will not know the interest rate on the loan until the loan has met with approval, thus it is advisable for students to submit several applications to different lenders to find the best rate. They are not obliged to accept an approved loan offer but by submitting several they are not tying themselves into one shabby rate. The student should also consider any fees or penalties attached to the loan, together with any discounts. It is also worth investigating further to determine what conditions the lender attaches to any deferment requests which may be necessary at a later date.

When searching out a private student loan lender ‘fast’ should be the last thing on the students mind. If tempted to rush the application or the decision it could well end up being a costly one. It pays for the student to approach seeking out a private loan with caution and due appraisal, and never just plump for one lender. Instead the range of options should be considered, with private lenders, state lenders and credit unions explored.

Students should not leave their homework on lenders until the last minute, but carefully submit several applications at the same time so they are considered as just one inquiry on the credit file. Whilst private student loans may be approved quickly they should not be left as a fast last minute decision but given very careful thought, as they are undoubtedly the most expensive option when it comes to student borrowing.