With the costs of a college education on the rise, many students are finding that private loans are a necessary evil. You have probably heard some scary stories associated with the rising interest rates and steep late penalties that get students into trouble.
Unfortunately, when parental resources, scholarships, and federal financial aid don’t cover everything, you will need to apply for a private student loan. The good news is that it is possible to borrow safely and educate yourself about responsible loan handling. Understand more on scholarships for college students to choose the type of financial aid that will benefit you the most.
Most students will require a cosigner for their private loan, if they have not established credit. A parent or guardian will probably be your first choice, but be sure that they have good credit. They will have to go through an approval process in order to qualify for the loan. Realize that your cosigner takes on the same financial risks as you. You can consider him or her a partner in your loan, who will be negatively affected should you default on your payments.
Both you and your cosigner should read the fine print of your loan agreement, making note of interest rates and options as well as deferment policy on the loan, before you sign off. Students are usually given about six months of a grace period following graduation in order to find a job, but this is not always long enough in today’s unstable job market.
Discuss worst case scenarios, such as what you would do in the event that you are unable to begin repayment as scheduled. Check out Education Connection to make preparations for the repayment of financial aid should you breach the terms of agreement.
At some point, you will likely have to choose between a fixed interest rate and a variable rate. A fixed rate is an interest rate that can never increase, while a variable rate can go up and down with no restrictions. You may be tempted to go with a variable rate, since it usually starts out lower than a fixed rate, but be warned that the variable rate could balloon beyond your expectations.
When deciding between a fixed or variable rate, keep in mind the amount of your loan and the length of time over which you expect to pay it back. If you have a small loan that can be paid off in a couple of years, you’ll likely save money by going with a variable rate. For a 15-year loan, on the other hand, a variable rate is far too risky.
A good way to lower your interest rate and monthly payments is to consolidate multiple loans, or to consolidate a loan with another lender.
Your cosigner will have to be involved in this process, as well. Consolidating multiple smaller loans into one loan also makes it easier to keep track of payments, as you’ll receive one bill per month as opposed to multiple bills.
When it comes time to begin repayment on your loans, be aware that you if you can, you should pay more than the minimum.
In fact, put as much of your income as you can towards your loan. The more quickly you pay off these debts, the more money you will save on interest. You will also free yourself up financially for the possibility of buying a house or supporting a family down the road.
Taking out private student loans doesn’t have to be frightening. Though no one enjoys being in debt, it is possible to manage your loans responsibly. Soon, you’ll be well on your way to paying them back! Those who take courses online do not have to pay as much for college. Education Connection will lead students to degree programs and universities that they may be interested in.