With many fall semester bills due on August 1, you may currently be looking for ways to cover your remaining tuition balance. And you may be considering private student loans for the job.
Unfortunately, when it comes to borrowing private student loans, things are as unruly as the Wild West—except there’s no John Wayne to make the tough decisions for you. So, before you sign the dotted line, here are some tips to help you choose the right option for you, pilgrim.
1. Be Sure A Private Loan Really Is Your Best Option
Before navigating the waters of the private student loan market, make sure that you exhaust all the other options you may be eligible for: grants, scholarships, federal student loans, etc.
(Did you look under the couch cushions yet? I’ll wait.)
2. Know Your Interest Rates
Your loan’s interest rate will predominantly determine its overall cost, but don’t just jump at the lowest advertised one.
Many lenders claim “rates as low as X%.” The only way you get a rate that low, though, is if you or your cosigner has nearly perfect credit. You will need to apply to find out what your actual rate is.
Don’t be afraid to shop around for the best rate that you qualify for—just try to do so in a small window of time (2 weeks or less). That way, all the hard inquiries into your credit won’t affect your credit score as much.
Pay attention to whether the rates are fixed or variable, too. Even if it has a cap, a variable rate that starts low can increase significantly over time, costing you a lot of money. Don’t get caught off guard.
3. Read The Fine Print For Costs And Benefits
There are other loan costs than just interests. Many lenders also charge an origination fee, which deducts a percentage of your total loan before it ever gets disbursed to your school. Try to stay away from loans with these or other fees. If you can’t avoid them, go for options that have the lowest fees you can find.
Also, see if the lender offers postponements (deferments or forbearances) if you are having trouble making payments. And find out if they’ll discharge your loan if you become disabled. Most private student loans may not offer options like these, but if they do, that could make them worth your while.
Finally, if someone is cosigning your loan, see what options they have. For instance, a cosigner release is a great selling point if he or she is on the fence about cosigning with you. This release is sometimes offered after 48 months of on-time payments.
4. Do Your Research
Borrowing a private loan is like entering into any new business arrangement—you should be aware of whom you’re working with. You don’t want to wake up to find that your loans aren’t being handled how you had expected.
Visit the Better Business Bureau (BBB) and the Consumer Finance Protection Bureau (CFPB) websites to learn about the lenders themselves. The BBB has business reviews and records of complaints against companies. The CFPB compiles reports on private student loan lenders’ practices and gives helpful information about the types of complaints received about each.
You should steer toward lenders that have good customer service, fewer complaints, and will be around for the long haul. Consider a student-friendly lender who specializes in student loans before Joe Shmoe Bank that just opened in the old Blockbuster building down the street.
5. Seek Guidance
Don’t be afraid to talk to your financial aid office about your options—they’ll likely know choices you may not be aware of. For instance, many states have agencies that offer private student loans. You may also be eligible for state-sponsored alternative loans, which are usually offered to students who are residents of that state or attend school in that state. Either way, you won’t know unless you ask.
Do you have a private loan? What do you wish you had learned before you borrowed?