Once financial aid has been awarded to those eligible, colleges and places of higher learning expect students to fund their studies using savings or loans from private lenders. There is no better investment than education, as the higher you progress the higher you are typically able to earn. But that doesn’t mean you should jump at the first student loan that’s offered. Just like any other form of loan there are important things to look out for, so here are 7 tips to help you along the way:
Whether you shop around downtown, call up the banks or use price comparison tools online, your first step to finding the best student loan is to compare your available options. This is not always easy as due to the variety of student programs and vague minimum and maximum rates advertised, but you will still be in a much better position than having never looked around at all. You should use several metrics to help your comparison and these might include the monthly payment amount, repayment schedule and terms, overall cost for the academic term, minimum and maximum rates, and extra fees.
Don’t Borrow More Thank You Need
This might seem like a no brainer, but just because you require some finance to fund your schooling doesn’t mean the full amount has to be sourced this way. Using some savings as a deposit will reduce the amount you need to borrow and agreeing to pay off some of the loan while still in school can even lock in a better rate.
Use a Cosigner with Good Credit
If you are a young student you are unlikely to have much of a credit history and this lack of data might push the interest rates offered up, because the lender cannot accurately assess your risk. It is common practise and in some cases even required by lenders for students to have a cosigner share legal responsibly for the debt. Commonly this is a parent or family friend. A cosinger is somebody who agrees to pay back the loan if the main borrower fails to do so. Therefore it is an added form of security for the lender. Of course for the cosigner to carry any weight they themselves must have a good credit score and ideally many years of credit history to look back on. Data suggests that up to 90% of undergraduates use a creditworthy cosigner, so you will be at a disadvantage if you don’t.
Applying for Multiple Loans Doesn’t Hurt
Although madly applying for lots of loans and credit cards will have a negative effect on your credit score, the idea that it has a really big impact is a bit of a myth. If you are apply for the same type of product and do so within 30 days it is treated as just one search on your credit report, even if you did 10. So to ensure you stand the best chance of being approved for a student loan you should apply for several and then accept the best from the bunch. This is also a much more efficient process.
Your Repayment Plan Affects Your Interest Rate
Lenders recognize that full time students are focussing on their education not earning money, and their investment is in the student’s future. That’s why they offer many different repayment plans depending on the borrower’s circumstances. The common three options are to defer repayment until after graduation, pay back only the interest while studying, or if the student can afford it begin paying everything back in instalments right away. If you can afford the latter, it will work out better in the long run as you will be offered a lower rate. Even if you agree to pay just a portion of the loan during school you can get a reduction on the rate. Remember, regardless of the rate the longer the debt is outstanding the more you will pay overall as interest will applied for longer. This element of the repayment plan is important to compare between lenders.
Consider Variable Rates
Although the idea of a variable rate can often conjure up images of extreme volatility, the truth is they are usually quite stable and you will always start at a better rate than a fixed loan. Of course, variable rates can and will fluctuate, but this isn’t always in the lender’s favour. In many cases it may be willing to take the risk of a slightly higher rate in the end, if you can make a saving in the long run. At the least it’s worth considering.
They Are Tax Deductible
Families with student loans may deduct the interest they pay each year, up to $2,500, so long as they meet certain criteria. Who said student debt was all bad?