Applying for Student Loans Tips: What You Need to Know About Private Loans
College is expensive!!
And if you have no way to pay for it, you’re probably going to need to get a loan.
Applying for student loans can be daunting when there are a lot of confusing terms! It’s hard to figure it all out on your own.
I’m here to walk you through the process and answer any questions you may have about applying for student loans. In this post I’ll simplify things, so you can make your loan choices with confidence.
If you haven’t already applied for FAFSA – read this article. It goes over your other options for paying for college, like scholarships and federal grants.
AKA money you don’t have to pay back. Get more information about federal loans right here.
You’ll want to exhaust ALL of your other resources before deciding to take out a private loan. You may just find a way to bank roll attending college without applying for student loans.You'll want to exhaust ALL of your other resources before deciding to take out a private loan.
If you do end up applying for student loans, you’ll have to pay it ALL back.
Student loans are rarely forgiven, usually only death or permanent disability will get you out of repaying them. Even in cases on bankruptcy, private student loans are highly unlikely to be forgiven.
If you think you can get out of it by defaulting on the loan and waiting 7 years for it to fall off your credit report, think again. Once you default on a student loan, the private lender may sue you and then garnish your wages – as much as 25%.
This is all scary financial stuff, but you need to be aware of all the consequences if things go sideways. Knowing it all will help you make the best decision for yourself.
No one wants to go into debt. But if you must, then let’s talk about how to do it the smart way.
So from here:
I’ll assume you’ve already looked into your other options for paying for school. Now you’re checking into your last option: private student loans.
Applying for Student Loans Tips (Private Loans)
Private student loans are loans you take from a lender such as a bank, credit union, state agency or a school.
These are ALWAYS end up costing you more, but sometimes they’re your only option.
Do I Need a Good Credit Score?
If you choose to get a federal student loan after applying for FAFSA, then NO.
If you are applying for student loans from a private lender, then YES. It will be one of the most important factors.
Tip: Credit Karma is a free way to check your credit report (updated very 7 days).
If you’re not monitoring you credit, you should be!
It’s often good to know what’s making your credit go up or down. If you are late on a payment, you will generally see the effect within 30 days and see your credit score drop.
This can help you realize how much even just one skipped payment can affect your credit. A visual like this can help you stay on track financially.
Checking your credit also helps insure that fraudulent accounts or incorrectly reported information can be fixed quickly.
Why is My Credit Rating Important?
Here’s why when applying for student loans your credit rating is important:
The companies lending the money look at your credit rating to see how well you’ve paid your bills in the past. If you are behind or have skipped payments, they will NOT want to work with you.
Let’s put it this way:
If your little brother wanted to borrow $100 from you, but you knew the last two times he borrowed from other people he didn’t pay them back – would you do it?
It’s the same with loan companies.
The way you treat other creditors, is a good indication of how you will treat them.
Private loan interest rates are determined by your credit score.
Note that: the interest from private loans is usually NOT tax deductible when you use it to pay for college.
What is a Cosigner?
A cosigner may be required on a loan if you do not have enough established credit or a high enough credit score.
This is someone with great credit who will be responsible to pay your loans if you do not.
And because of that:
It’s not that easy to find a cosigner. This has to be a person that has absolute trust in you.
If you miss a payment, it will bring their credit score down as well. And if you just stop paying all together, lenders can come after the cosigners assets as well.
What Types of Loans are There?
When you are applying for student loans, keep in mind there are different types. The type of private loan you take will also affect the interest rate.
Types of private loans:
Secured – this is a loan where you leverage your personal property to obtain the loan.
This could be cash, or other valuable items (like a car). The problem with this is:
If you want to use the cash – you can’t. The bank holds onto it. Or, if you used a vehicle as collateral you cannot sell it while the bank secures it.
Unsecured loans – these are loans taken without leaving collateral.
These are usually only given to people who have a long history of positive established credit. These types also have higher interest rates, and are called “personal” or “signature loans”.
Open ended loans – these are usually credit cards.
Open ended loans have an amount of credit you can borrow, pay back with interest and borrow again.
What is Student Loan Refinancing?
Refinancing a student loan is when you get a new loan with a better, lower interest rate to pay off your current student loans. You then will be paying back that refinanced loan.
There are instances when this is a good option and a not so good option.
I recommend reading this super informative article to learn more about student loan refinancing.
A Few Last Tips When it Comes to Applying for Student Loans…
Here’s some final student loans tips; information to know beforehand…
1) When applying for student loans, DON’T borrow more than you need – it’s not a free ride.
Remember, you will have to repay your loans PLUS interest. Private loans have high interest, so it will really pile on.
2) It’s also advisable to NOT take on more student loan debt that your what your estimated first year salary will be.
You DO want be able to pay off your loans in a reasonable amount of time after college. Taking on a massive amount of debt for a lower paying career is just a bad move.
3) When you take a private loan to pay for college, payments are required WHILE you’re still in school.Did you know that when you take a private loan to pay for college, payments are required WHILE you’re still in school??
4) The interest rates are higher with private loans (some more than 15%), and variable – meaning they can go up or down.
Federal loan interests rates are almost always lower. If you can use one of those instead, it’s going to be the better option.
5) With private loans, there will not be options for paying it back.
In other words:
If you cannot pay on time or need lower payments, you’re like my dad says: SOL (SHIT OUT OF LUCK).
6) These types of loans sometimes have penalties for paying early. It doesn’t seem to make any sense, but lenders are businesses.
Businesses want to make money and they make money off the loans interest. When you pay it back sooner, you pay less interest on the loan.
If you do take a loan and want to pay it off fast, you may end up paying MORE because of prepayment penalties!
7) Keep copies of loan documents, understand all the terms and keep in touch.
When you graduate, withdrawal, drop below half-time, transfer, change your name, address or have trouble paying, you need to contact the servicer of your loan(s). They will help you make changes and may be able to give you options to keep your loan in good standing.
8) Pay on time always, even if the bill doesn’t come.
It’s your responsibility and it’s your credit (or a cosigner) that is affected.
Leave me a comment below to get help with any other questions you have!
DISCLAIMER: This article is for informational purposes. CollegeLifeMadeEasy.com is not responsible for what financial decisions you make. Please consult a licensed financial professional before making any financial decisions.