Paying for college
with private loans -- Page 2
Another reason more students are turning to private loans is
their parents may be unwilling or unable to pay for college expenses.
private loan substitutes for the parent doing any kind of contributing,"
says Linda Peckham, the College Board spokeswoman for financial aid issues.
Some families prefer that a son or daughter borrow for college rather than the
parents. And some parents just can't fit another loan payment into their monthly
budget. The best they can do is to offer to help the student with private loan
payments, which would start a few months after graduation.
lot of times families are turning to these instead of the parents doing the borrowing,"
Peckham says. "The entire cost of education is being paid for by the dependent
Students turning to private loans to pay for college will
want to do plenty of research before signing on the dotted line. Interest rates,
fees, repayment terms and borrower benefits vary from private loan to private
"People really do need to do their homework
by making side-by-side comparisons," Buck says. "Really lay out the
paperwork and select the best choice. Read the fine print."
All private education loans are credit-based loans.
The interest rate you pay on a private loan depends on your credit,
so the better your credit, the lower the rate you'll pay. Interest
rates on private loans typically range from 4 percent to 15 percent.
Students with excellent credit can expect to pay
interest rates in the 4 to 6 percent range.
"If your credit isn't stellar you might
pay more, but it's still generally a single-digit number,"
says Daniel Meyers, chief executive officer at First Marblehead,
a Massachusetts company that manages and finances private education
Some students may need a co-signer to qualify for
a private loan.
"Different lenders require different things,"
Peckham says. "Several of them are going to require a parent
as a co-borrower."
Even a student that qualifies for a private loan on
their own may want to consider getting a co-signer anyway. Signing
on with a creditworthy co-signer could mean a lower interest rate
and lower fees.
For example, a Signature Loan from College Board
charges up to a 6-percent repayment fee for students who borrow
on their own. Student borrowers with co-signers pay no such fee.
A student's major or area of study may influence
repayment terms as well. One lender may view a pre-med student as
a safer risk than, say, a philosophy major. Another lender may charge
a law student a slightly higher interest rate than a graduate business
And that's why it's so important to begin your private
loan search at your school's financial aid office. An aid counselor
may be able to direct you to lenders that offer favorable loan terms
to students in your area of study. There's also a good chance your
college will have negotiated favorable loan deals for its students
with one or more lenders.
And just as importantly, a financial aid counselor
will double-check to make sure you've exhausted all your federal
aid options. A private loan should be your last resort.
"We don't want them to get into a private
loan situation when they don't have to," Johnson says.
Private loan shopping
If you're certain you need a private loan, you may want
to do some shopping around on your own.
The Internet makes it easy. All you have to do is
type in "private education loan" on any search engine
and a whole slew of lenders will pop up.
Don't forget to check your university's Web site.
Some financial aid departments list private loan information online.
You'll also want to check to see if your parent's
bank offers private education loans. Having a co-signer who is a
longtime bank customer may land you a lower rate on your loan.
"Always try to check prices and costs
from a few different programs," Meyers says.
Be sure to study the fine print of every
deal. What kinds of interest rates are available?
Does the loan charge a disbursement fee or a repayment
fee? A disbursement fee is a fee that's charged once your student
loan check is cut. A repayment fee kicks in when it's time to start
paying on your loan.
Keep in mind that the terms offered in big, bold
letters are probably reserved for people with squeaky-clean credit.
There's no guarantee you'll qualify for that rock-bottom rate, even
with a co-signer.
"Be a bit cautious of marketing gimmicks,
things designed to catch people's attention," Meyers says.
"Be a little careful. I wouldn't instantly assume you're going
to get all the benefits of the loan."