Private Student Loans
Most students will receive information about loans – both federally funded and private - from their college's financial aid offices soon after acceptance to the college they plan to attend.
Students, or their parents, should fill out a FAFSA or Free Application for Federal Student Aid. They'll need to have up-to-date tax information to do so. The FAFSA will alert the college or university as to the student's financial need.
Many students will be offered some sort of federally funded aid – perhaps subsidized Federal loans if they have financial need, or unsubsidized loans if it's deemed that their need is not so great. Any sort of Federal loan is generally a better "deal" for a student than a private loan from a bank or other lending institution.
Many students, though, may need to borrow more money than they can borrow from federal sources, or, for one reason or another, may have to take all of their loans from private sources.
When deciding on which private loans to apply for, students should check and see if their lending institution charges a fee and, if so, what that fee is. Most students will look for low interest rates but some forget to look into the fee charged for the loan, which can make the loan much more expensive if the fees are high. It may be better to choose the loan that has the higher interest rate but has no fees or low fees. Occasionally lending institutions that don't charge fees are simply adding the fees to the interest rates. Fees that add up to 3-4% of the loan are about the same as a 1% hike in the interest rate.
A long time to repay private student loans will probably be appealing. Keep in mind that a low interest rate plus taking a long time to repay a loan adds up to a lot more money in the end. A shorter term, higher interest rate loan, can cost less, if the student thinks that he or she can afford the higher payments upon graduation.
If a student, or his or her parents, has excellent credit and a cosigner with excellent credit, they may be eligible for the best loans from private institutions. These loans generally offer interest rates of the prime rate minus .5%, or LIBOR plus 2%. They will not have fees. If you can get a loan that depends on the LIBOR rate you will probably be getting a better deal than a loan that depends on the prime rate.
Before taking any loans, a student, perhaps with the help of parents, should sit down with counselors in the financial aid office of their college or universities. These financial professionals should be able to point the student in the right direction as to the best places to apply for student loans.
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