Your student has explored every grant and scholarship opportunity.
All the Federal loans have been secured.
And yet there's still a bit of college to pay for.
It's time to find a private student loan.
First Step: Understanding The Basics
How to choose between private student loan options? Which loan is best for you? The obvious answer is the one that will cost the least--just make sure the appearances aren't deceiving.
Keep in mind the following:
- Interest rate -- the lower the better, of course; variable rate loans may start out lower but could increase over the life of the loan
- Fixed vs. variable rates -- with the former, you know exactly what your rate will be over the life of the loan; with the latter, there's an inherent chance that economic conditions will alter the loan rate, altering how much you'll pay
- Repayment options -- different repayment plans can have different interest rates; clarify if you’ll be paying back principal and interest immediately, interest-only while your student is in college, or deferring payment until after graduation
How To Get The Best Rate
Like any considered purchase, information is crucial. The more you research, the better off you'll be. A private student loan is like any other long-term financial commitment: know what you're getting into! To that end, here are some factors to keep in mind, along with a useful link at the end to help you calculate the impact of your decisions:
- Comparison shop -- ask each potential lender to define what their loan will mean to you in terms of overall cost, interest rates, repayment plans, and--at the most basic level--the dollar amount of monthly payments
- Be open-minded -- you probably already have a bank you do business with, but you want to find the lender that will do the best business for you; it’s okay if that provider isn’t your current bank
- Move swiftly -- if you apply for more than one loan in a narrow time frame--say, one month--it will have less impact on your credit rating
It's most likely, that in order to get the best student loan rate, that you, the parent will have to co-sign the private student loan. Perhaps the student is too young, or has not established sufficient credit, or is not deemed a suitable risk by the lender. Whatever the reason, being a co-signer is much more than a formality.
The parent’s signature could enable a student--even one who might qualify for a private student loan--to secure a lower interest rate. Co-signers are on equally on the hook for the money borrowed: if the student is unable to repay, the co-signer will have to. What happens in the course of repayment can affect not just the student's credit rating, but also the co-signer. (It's a good idea to pay on time and consistently.) And be aware that if the co-signer explores a new loan, the student loan may impact the lender's decision.
Good To Know
Ask potential lenders if they offer a form of a private student loan discount. Some lenders will reward you with an interest rate reduction if you are an existing customer or if you set up a recurring automatic payment. Yet another incentive is a graduation reward: if the borrower graduates within a specific time frame, you could see a reduction in the principal. Some lenders will even off flat dollar amount as a reward.
Oh, and one last thing: even if a borrower doesn't have itemized deductions, it's still acceptable to deduct as much as $2,500 in interest on private and Federal student loans on Federal income tax forms. Claim it while you can and you’ll diminish the overall loan cost.
So now it's time to research.
We suggest you begin with these private student loan offerings from our trusted loan partners.