Shopping for a student loan

Sallie Mae, one of the largest student loan providers, would like for borrowers to be able to comparison shop without endangering their credit scores, says Holler. "We believe that customers should be able to shop without penalties."

The last to know

When it comes to students and credit scores, this is one instance where the person most affected may be the last to know.

College students are often so worried about getting enough money to cover school, room, board and books that credit concerns often come last on the list, if they are on the list at all, says Carmen Berkley, president of the U.S. Student Association and recent graduate.

"I don't know that finance, with regard to credit score, is on the radar," she says.

But, since an estimated 50 percent to 70 percent of private education loans involve a co-signer (usually a parent), students aren't the only ones who could feel the sting of lower scores.

For students, who are often first-time borrowers, loan shopping is "a really confusing process," says Berkley. "It's confusing for students, and it's confusing for parents."

Steps to minimize credit damage

There are at least nine steps students and parents can take to make smarter loan choices and minimize the impact on those credit scores:

1. Max out all of your options for federally backed loans before you even consider private loans.  Federally backed loans don't require a credit check (everyone gets the same rate, regardless of credit), so they won't depress your score. Plus, the terms, fees, and repayment options are generally better.


2. Talk to your college.  Your financial aid office can tell you which private lenders other students are using most, and the types of rates and fees they are seeing. They may even be able to tell you about the terms and fees on the loans they've seen. Some schools even have affinity programs with lenders, which can give students a better rate, says Kalman Chany, co-author of "Paying for College Without Going Broke."

Students are sometimes reluctant to use the aid office to their full advantage. And some parents may be wary because, in the past, some lenders and colleges were chastised for being too chummy. But, if you keep your eyes open and do your own research, colleges can be a great source of information you might not get anywhere else. While you're at it, find out if your college lends money (some do), says Chany.

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