Many students turn to private student loans because they believe they are the easiest to get, and they can get the most amount of money. While this is true, it’s important to consider a few things before jumping into them.
Exhaust All Other Funds First
You have many options to fund your college education. You have federal grants, scholarships, and work-study that could help you pay for tuition and other college-related fees. To find out if you qualify for these, you’ll need to complete the Free Application for Federal Student Aid (FAFSA) that provides you with grants for college. The advantage of these over private student loans is that you don’t have to pay them back, so you don’t have to worry about interest accumulating or being in debt as soon as you graduate.
Comparison Shop for Interest and Fees
Many students believe that private student loans with low interest are the best ones to get. That isn’t necessarily true. Some private loans come with high fees, and those fees can sometimes end up costing more than having a higher interest rate with lower fees. Always ask the lender how much the fees are, and then consider how much money you will pay in interest for a different private loan. You may just be surprised to find that the higher interest rate loan is a better choice.
Don’t Forget Federal PLUS Loans
The federal government has loans much like private student loans. They have lower interest rates though, and the repayment terms are often more lenient for students. This can help greatly when you graduate and looking for your first job. You won’t feel so pressured to have an income because of a private student loan hanging over your head.
Choose LIBOR Pegged Loans
When you start looking into private student loans, you’ll learn about two types: LIBOR and Prime Lending Rate. In most cases, loans pegged to LIBOR are much less expensive in terms of interest. The catch is to qualify for these loans you and your co-borrower must have excellent credit. While it’s unknown how good credit has to be to quality for it, only about 20 percent of borrowers end up being able to use the LIBOR loans.
Many lenders will advertise specials for private student loans. These specials sound attractive because it gives students a low interest rate when they are in school. The problem is that the interest rate rises substantially after graduation, so unless the student pays off the entire loan as soon as he or she graduates, there will be a hefty interest charge every month a loan balance is carried over.
Research and Choose Wisely
Start with the funding that doesn’t cost you anything, which is the federal grants, scholarships, and work study programs. Once you’ve received those or don’t quality for them, start to research private student loans. While they aren’t the best option, they are a good option when you want to seek a college education. Choose the lowest interest and fees you can find, and if possible, the LIBOR is your best choice. Always research the special private student loans because they could end up hurting you more than help you. Get the funding you need today whether it’s grants, scholarships, or loans, so you can have a bright, successful future.