Getting student private loans regardless of need
Private student loans are commonly referred to as alternative student loans, but whichever they are known as to you it is important to know right off the bat that private loans should be the last source to go to for financial aid money for college. This is because private loans as the name implies are managed and given by private companies that are in the business of student loans for the money. Interest rates on private loans are generally much higher than federal loans, and often come with disbursement fees, repayment fees, and even sometimes application fees.
There are of course advantages to private loans. The first advantage is that they are available to anyone looking to fund their college education, regardless of their need. Another advantage to private loans is that they often have far higher maximum limits per year and per degree then federal loans and grants. Of course if you are eligible for federal loans, federal grants, or any money from your school; you need to exhaust those sources first before considering private loans.
The first step in finding a good private student loan is to look beyond your school’s financial aid office. While some offices are honest and look out for the student, some have been accused of accepting bribe payments from private loan companies to service and promote a certain higher interest loan or fee laden deal. Many companies are available by searching the internet, asking fellow students, or a trusted financial aid officer at your school.
The next step is to narrow down the list by looking at critical fine print information such as disbursement fees, repayment fees, and of course interest rates. Disbursement fees are charged (applied to your total) whenever a loan is sent as a check to your school or to you. Keep in mind that private loans sent directly to the student often carry higher disbursement fees then those sent to your financial office; after all their charging a bit more for the ease of having the money directly in your hands (if this sounds like a credit card company move, don’t be surprised a lot of banks service cards as well as student loans). Repayment fees are paid when your loan is in repayment and you want to look for the lowest fees possible of both disbursement and repayment fees. More reputable companies often waive or reduce these fees if done through a school financial aid office but again be careful if your school’s financial aid office seems to be hawking pricey loans.
Interest rates are the next thing to consider. Many loans come with interest rates that can change at any time for pretty much any reason, so you’ll want to find loans that either have fixed rates or have an option to consolidate after college. Shop around to find which loans have overall lower rates. You can also get lower interest rates based on your credit history, although since many students are younger and may have no history, you may end up with a rate more likely to be given to someone with bad credit. Getting a cosigner such as a parent or close relative is always an option and most loan providers will offer lower rates to loans that have cosigners on them.
But before you convince someone to be your cosigner keep in mind that once the person signs the agreement, they are just as responsible for the loan as you are. That means if you don’t finish school, can’t pay the loan, or refuse to pay the loan then that person will be on the hook for the bill. Due to this risk many people are unwilling to cosign and if you are being considered as a cosigner then think long and hard about the decisions, don’t be guilt tripped or bribed into signing on the dotted line. Be sure as a potential cosigner that you ask yourself if you could afford this financial risk if the student defaulted on the loan, consider if the student is likely to finish college, and consider if they’d ever do the same for you.
Remember to shop around and look at differences in fees and interest rates. Also don’t be discouraged if you get turned down for a loan, there are always other loan providers out there and options such as finding a cosigner exist for getting approved for the loans. Remember to also consider the maximum amount that can be borrowed each year and for the life of the loan; if you are looking for graduate or professional school loans the amounts may vary and you may get more money per year. And of course remember that private loans are not free money, you should exhaust all other sources of financial aid before applying for private loans, this is money you’ll have to pay back plus interest so it should be used as a last resort and only for education related expenses (tuition, room and board, books).
Written by MaxwellPayne
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