Whether you plan on enrolling online or heading to campus for college, one this is for sure: you need to find a way to cover your tuition. For most coeds, applying for college student loans to take care of all the necessary expenses like housing, tuition, books, and food, is but the best option.
Federal student loans are usually what most college students consider. However, these loans are not enough to cover all the expensive costs of going to college.
Private student loans or work-study programs and grants can help bridge the gap between how much you are capable of paying for college and what you need for school.
However, National Foundation for Credit Counseling vice-president for communications Bruce McClary warned students about obtaining a loan. Accordingly, planning for college expenses is a daunting task especially with all the uncertainties revolving around college campuses and class schedules.
Below is a guide that fully explains how these college loans work, their drawbacks and benefits, and what you should look for should you plan to shop for private student loans.
How Private Student College Loans Work
The most common federal student loans provide standardized loans types, terms, and interest rates for its borrowers. However, with private student college loans, interest rates vary. Terms and options differ.
Your credit, as well as that of your co-signer (in case you have one), also affects which loan types you qualify for and its corresponding interest rate.
There are several types of loans; all of which depend on what degree you are trying to pursue. Each loan type affects the overall loan amount, its interest rates, and the repayment terms.
Community college. There are some college lenders who provide loans to students enrolled in a non-traditional school or pursuing a two-year degree. Career-training programs and technical training classes also fall under this category.
Undergraduate school loans. Anybody can take advantage of undergraduate school loans. Here, you get to lend money to cover all the necessary expenses during your bachelor’s degree schooling. These types of loans have higher loan limits and lower interest rates than community college loans.
Graduate (Professional) school loans. These are the types of college loans with bigger maximum loan amounts than the usual undergraduate loans. After all, attending school for a doctorate or master’s degree is exorbitant. Lenders who provide these types of college loans have special loan offerings for law, medical school, or business.
Parent Loans. As its name implies, these are loans offered to parents. Here, parents have the legal obligation to pay for the loan intended for their child’s schooling.
What is A Loan Term?
This is the length of the repayment period of the loan. Terms generally vary depending on the type of loan, but these normally range between five and twenty years.
Shorter loans commonly have highly monthly dues but have lower interest rates, making the total cost of the loan lower. On the other hand, longer terms loans have higher interest rates but with lower monthly payments. In effect, the total cost of the loan becomes higher.
Loan Minimums: A loan minimum will vary depending on your state of residence. Most lenders require a minimum loan amount that you can borrow. Since the amount can be as low as $2,000, obtaining a student loan is not a wise move especially if you only need a couple of bucks for school needs, like books.
Loan Maximums: Lenders have limits that can affect the amount you plan to borrow. Let’s say, you are only allowed to borrow a certain amount of money for a specified time.
There are also cases where your loan maximum is only limited to the certified cost of attendance to your school, minus other financial aids you have. Maximum loan limits are also higher if you are either graduating or in a graduate school because of the potential higher cost of these programs.
Interest Rate Types
There are two interest rate types lenders offer in student loans: fixed rates and adjustable interest rates. Before taking out a loan, it is in your best interest to carefully weigh your options because once the loan is approved, you can no longer switch your type of interest rate.
When comparing student loans from lenders, check the annual percentage rate instead of its interest rates. APRs are your annual overall cost of borrowing. It includes the interest rate of your loan, its compounding interest, as well as other discounts and fees.
Fixed-rate loans. When you go for a private student loan with a fixed-rate interest plan, the interest plan you agreed to take out will not change during the whole duration of the loan.
Simply put, the interest rate is locked, although the figures will generally vary on the lender, the market rates, and the terms of the loan. This is actually a good option. That way, you won’t have to think about interest rates ballooning over time.
Variable-rate loans. The factors that identify an interest rate with a private student loan under a fixed-rate scheme also affect the initial interest rate in case you take out a variable-rate loan. The main difference here, though, is that with the variable-rate loans, your monthly interest rates may possibly rise (or fall).
Interest rates for these variable-rate loans are entwined to an index like the prime rate. Meaning, the lender gets to add a margin to this index for them to determine your overall interest rate. However, there may be limits as to how low or high your interest rates can go.
The Drawbacks of Private Student Loans
While private student loans can really help students in their college funding, private student loans also have their setbacks as compared with federal student loans. What are these?
Credit-based eligibility. The loan terms on most college loans will greatly depend on the credit standing of the applicant. Some lenders will even require a creditworthy co-signer so that the student applicant can get approved.
Risk for Co-signers. When co-signers are added to a private student loan, they are at a high risk of taking on the debt. In some cases, co-signing can affect an applicant’s ability to get approved for other loans.
Worse, when the student borrower fails to secure a payment, the co-signer’s credit credibility becomes in question. There are also cases when the co-signer is held fully responsible for paying off the debt if the borrower gets disabled or permanently dies.
Higher interest rates. There are instances where private student loans are offered with lower interest rates than those federal student loans. However, this is not always the case.
Interest rate accrual. With the subsidized federal loans, the ones who will shoulder the interest rates while you are still in school is the government. The same apples for loans that are in deferment. But in private student loans, you, as the borrower, will have to accrue all the interest within the agreed loan term.
Choosing the Best College Loans
You need to keep your eye on four critical areas when you compare private student lenders. The Consumer Financial Protection Bureau, the Federal Trade Commission, and the US Department of Education, all agree on these four key areas: Product offerings, Eligibility, Cost, and Additional Features.
By the time you have decided with college loan you wish to avail, check what a lender has to offer. Does it match your requirements? Understand their limits and loan terms. Make sure that your potential lender has a financing scheme for your specific college degree.
Check what a lender requires for college loan applications. These normally include enrollment, citizenship status, or income, and credit history. Ensure that you will qualify for the loan you’re eyeing before applying. Normally, requirements for college loan eligibility include:
- Citizenship Status. College loans are only available to US nationals, US citizens, or permanent resident aliens. However, international students can still apply for a loan provided that a US citizen will stand as a co-signer.
- Enrollment. Most lenders only provide student loans when you are already enrolled halfway within an eligible school.
- Age. You need to meet the age requirement for the loan application, otherwise, an eligible co-signer may be required.
- Income. Income requirements are needed, like debt-to-income ratio requirements, that the applicant or the co-signer must meet.
- Credit History. You need to have a clean credit history in order to qualify for a student loan. Without an established credit, a creditworthy co-signer may be required. And since the co-signer’s credit is the one considered in the application, the student loan now becomes his legal responsibility.
Private student loans will depend on several factors like the interest rates or the interest type you wish to avail yourself. It is wise to closely look at the fees surrounding the loan so you can at least calculate how these figures can affect your overall borrowing cost.
Fine prints from these college loans vary from one lender to the next. Here are the most common ones.
- Autopay savings
- Other savings opportunities
- Early repayment options
- Deferment options
- Financial hardship deferment
- Discharge due to death or permanent disability
- Co-signer release
College Loans: Easy Application and Low Interest Rates
Below is a list of some of the best college loans with easy application and low-interest rates.
With a fixed APR of 4.74-11.85%, and a variable APR of 1.25-9.44%, Sallie Mae offers competitive student loans that are just right for you. Whether you are a parent, an undergraduate, or a graduate, Sallie Mae offers competitive interest rates and multiple repayment options.
This loan only takes you about 3 minutes to apply online. With no application, no origination, and no disbursement fees, you get an instant credit decision at the quickest possible time.
They offer customized repayment options; whether you start to immediately pay or wait until your degree is completed. Plus, you have two options to choose your loan terms: 5, 8, 10, or even 15 years, the choice is yours.
The best reason why you should consider Ascent is because you are provided with more opportunities to pay for your college tuition with or without a co-signer. They offer loans to more than 2000 colleges nationwide.
Application for this lender is very easy and quick. You and your co-signer can apply from any device in a matter of minutes.
You can also take advantage of their free Money Mentor, a real person who is trained to help you get the most of your money for school, or help you find internship opportunities and even manage your budget. Fixed rates are at 5.45%-9.74%, while variable rates are 1.43-7.41%.
You can get lower APRs if you are a creditworthy applicant. Variables rates are at 1.87%-11.62%, while fixed rates at 4.49%-12.39%. This student loan program can cover up to 100% of school-certified costs-aggregate loans, with zero fees. And in as little as 15 minutes, the application is done online and is relatively easy.
Are College Loans a Good Idea?
College loans are just the same as mortgages. Both are generally considered “good debt”. While student loan repayment can be challenging, there are actually reasons why student loans are considered good debt. Like mortgages, college loans involve a large amount of money that usually takes some time to pay back.
As you pay your loan back every month, you are showing the lender your capability to pay for a loan, thus proving further your creditworthiness. In turn, this can increase your good credit standing.
In a good debt, you get something good out of it. With student loans, you secure a college education, and eventually, this will result in an increase in your potential lifetime earnings. This is the very reason why college loans are considered ‘good debts. ‘
How to Find the Best Student Loans
You can find several lenders with different programs. Because of the overwhelming choices, it is critical that you compare one lender to the next. You also need to do your research on the different college loans programs out there.
Depending on your degree, find the one that meets your requirements; something that you believe can help you achieve your goals to finish school.
RELATED FAQ: How Do Grants, Loans, And Scholarships Differ?