college

4 tips to navigate private student loans

Current rates on Chase student loans start at Libor plus 3.7 percent for a student who applies with a qualified co-signer, Bean says.

Add up the total cost

The Higher Education Opportunity Act of 2008 spells out the disclosures that lenders must make at the time of a private student loan application and prior to the disbursement of the loan. That information includes the total loan amount, the interest rate and the terms of repayment.

"Unlike federal loans, there is no cap on your repayment amount (with private student loans)," Draeger says. "So (borrowers) have to take a very realistic look at how much they expect to earn once they complete their degree or credential, and what the repayment amount is going to be."

Draeger notes that online calculators provide a convenient way to figure your total repayment.

Loan origination fees can add significantly to the cost of a private student loan. Kantrowitz warns that a fee of 3 percent to 4 percent at the outset of the loan can have an impact equal to a 1 percent spike in the interest rate over the life of the loan.

Another caveat is that a longer repayment term increases your total interest payment even as it reduces the annual percentage rate of the loan.

Rewards for good behavior

Some lenders offer special perks like reducing your private student loan balance or your interest rate when you graduate, or when you set up an automatic payment system.

For borrowers who sign up to have their principal and interest repayments deducted from their bank accounts automatically, many banks will lower the interest rate by a nominal amount such as 0.25 percent.

"That's not going to lower the monthly payment amount, but it's going to reduce the interest that accrues, which would reduce the total amount that the borrower would have repay," Bean says.

Another example of a reward? Many banks offer to release co-signers from their obligation once the borrower has made a certain number of consecutive monthly, on-time payments.

In some cases, "The co-signer release has to be requested by the borrower, and the borrower has to pass applicable underwriting requirements at the time of the request," Bean says.

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