Whether you’re a parent or a soon-to-be high school graduate, the rising tuition cost of colleges and universities is overwhelming. There’s often a gap between the amount of funding a student receives and the cost of their chosen school, adding to the stress of the college experience. Many of you are all too aware of the FAFSA (Free Application for Federal Student Aid) process. For some though, the federal borrowing limits will be too low, or you just won’t qualify. In those cases, private student loans may be a good option for you. Offered by private lenders, these loans can be used for tuition, books and supplies, or living expenses. Before you apply for a private student loan, you should ask yourself a couple of questions:
- Have you exhausted all other resources? The most important advice to keep in mind when borrowing money for school – don’t borrow more than you truly need. Make sure that you applied for FAFSA first. Then look towards scholarships and grants. You’ll find that there are plenty out there. For instance, our credit union members are eligible to apply for a scholarship. This year alone we gave out five $1000 scholarships! And what about a job? Will you work while in school to help cover the cost of books or living expenses? Seek those first and private student loans last. Although it’s unlikely one can attend college without borrowing any money today, you don’t want to be weighed down paying back money you didn’t even need in the first place.
- Do you know what the terms are for the loans you’re considering? The terms, such as interest rates and repayment, vary from lender to lender. Some have fixed rates while others have variable rates. Some might require payments to start as soon as the loan is disbursed while others might have a grace period until you graduate. Which terms would be best for you?
- Have you calculated the balance you’ll owe including interest? The total amount you pay back to the lender will be more than what you originally borrowed from them due to interest. Our suggestion to those taking out private student loans is that, if possible, you start making small payments right away, to reduce the overall amount of interest that you will pay.
- Do you have a trusted co-signer? Unlike federal student loans, private student loans are credit based. That means that borrowers with little to no credit history will most likely require a co-signer.If the co-signer has good credit that could result in a better interest rate. You should ask the lender if a co-signer release option is also available. For example, the private student loan offered by our credit union allows a co-signer to be released after 24 months of on-time payments. This can certainly be more appealing to someone taking on a co-signer’s responsibility.
Paying for college can be scary, but we work to make it easier for you. Check out riafcu.com/studentloans for a flexible plan with affordable payments and no origination fee. You can apply easily online!