college

Steps to take before signing a loan agreement

To qualify, says Sallie Mae spokeswoman Martha Holler, parents must pass a simple credit check. PLUS credit checks are significantly less stringent than those for private loans. "It's just to make sure you have no adverse credit history, which means that nothing is past due," Holler states. "The PLUS loan is designed to be quick and easy to get."

Should your parents not qualify for a PLUS loan, you may be in the running for additional Stafford funding.

Shop around 
After you know what kind of loan you'll need, it's time to take a close look at loan providers. While your college or university will probably provide you with a list of preferred lenders, that's just a starting point, says Brent Tener, president of the Southern Association of Student Financial Aid Administrators. "No matter what type of loan they have, students need to do a good job of comparison shopping, reading the fine print and asking questions," he says. "Before you sign, you can always check with the Better Business Bureau to make sure the company you're working with hasn't been cited recently."

The relationship between preferred lenders and many colleges and universities has come under fire recently from New York State Attorney General Andrew Cuomo. He is investigating potential conflicts of interest between lenders and numerous colleges, and some have already agreed to pay a settlement and change their practices.

Research is required, Tener says, because lenders, even those disbursing regulated federal loans, vary tremendously in terms of loan perks and quality of service. When searching for a loan provider for either federal or private loans, Holler recommends asking potential lenders what they're willing to give for free. 

"The first question to ask is 'Do you provide fee-free loans?' If you shop around, you can find a lender that will pay the origination fee and federal default fees on your loans," she says. "The second question is to ask what types of benefits they offer."

Evaluate the benefits 
Draeger recommends evaluating loan benefits based on your projected payment behavior. If you're the type of borrower who's likely to pay each and every bill on time, check out benefits that will kick in during the lifetime of the loan, such as an interest rate reduction after a certain number of payments or your last few months free as a reward for making all of your payments.

If there's a chance that you'll miss a payment, experience a prolonged job hunt or go into a field with low starting salaries, stick with a lender that offers upfront benefits that will last the lifetime of the loan, such as an interest rate reduction when payment begins or a rate reduction for using direct debit.

"Benefits can amount to a couple of thousand dollars over the course of a loan, so it's important for students to take the time to fully understand their loan product," Draeger says. "Students and parents are often times exasperated by the time they get to the loan process, but rushing through is a costly mistake."

Christina Couch freelances from Richmond, Va.

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