Student Loan Tips

College is one of the most significant financial decisions a family will make. If you need money to cover college costs, follow these helpful student loan tips.

1. Always complete the Free Application for Federal Student Aid (FAFSA) first.

The FAFSA is the application for all federal aid, including loans. Federal student loans typically have a lower interest rate, and the repayment options are more flexible than private loans. Students should accept the maximum amount of federal loans they are entitled to before borrowing private student loans.

2. Calculate the cost of student loans for all four years.

Many students make the mistake of not considering the total debt they will take on throughout their education. The total student loan debt can add up over four years, so it’s essential to use a student loan calculator to see what the repayment amounts would be after graduation.

3. Only borrow the amount your student needs.

To prevent overborrowing, you and your student should seriously discuss budgeting before applying for loans.

4. Know that you’ll owe more than you borrow.

There may be loan disbursement (origination) fees, and interest will accrue on the loans (except for the federal subsidized loan) while your student is in school. This means that the loan amount the college receives will be less than the amount you pay back.

5. When applying for private student loans, take advantage of the rate shopping period.

The rate shopping period is the time frame allotted to get quotes from multiple lenders. It’s designed to provide borrowers the opportunity to find out who’s most likely to offer them the best interest rate. 

Once you apply to one lender, they’ll run a hard inquiry on your credit. Credit agencies treat multiple loan applications as one during this period, so applying to more than one lender doesn’t impact your credit score.

6. Undergraduate students will need a co-signer to get approved for a private student loan.

A co-signer is someone who signs the loan along with the student borrower. They’re legally obligated to repay the loan if the student fails to make payments. As a co-signer, the loan application will run a hard credit check, and the loan amount will be included in their debt-to-income ratio.

Anyone who is willing to be a co-signer for a student can cosign a private loan—including parents, grandparents, other relatives, or close friends.

7. Understand the factors that impact private loan interest rates before applying to lenders.

Four main factors impact interest rate offers:

  • term length
  • repayment type
  • credit score
  • type of rate

Lenders typically offer lower rates to those who:

  • choose the shorter-term lengths
  • opt into full or partial repayment while your student is enrolled
  • have better credit scores
  • apply for variable rates rather than fixed rates

8. Always check for interest rate discounts with private loan lenders.

Most lenders will give borrowers a discount of .25% off interest if they sign up for automatic payments. Make sure you know what discount is available and take advantage of it. This will help lower the overall amount that needs to be repaid.

9. Pay what you can while your student is still in school.

Making payments while your student is in school can help reduce the amount of interest accruing on the loan and keep the total debt down.

10. Consider refinancing your student’s loans after graduation.

After graduation, students can refinance their loans and may qualify for a lower interest rate. Keep an eye on lender rates and apply when they’re lowest.
Final Note: No one wants to take on student loan debt, but some students need loans to cover the cost of college. If you or your student needs to borrow money for school, follow these student loan tips–they’ll not only help you understand the process but make better decisions.

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