How To Get The Most Affordable College Loans

You’ve read about students who graduate with mountains of debt and struggle to pay off their loans.  Borrowing money may be the only way to pay for some of the cost of higher education but being smart can make the pay back less painful.

According to Nerdwallet, borrowers should choose federal loans first.  Students are eligible because they don’t require the borrower to have previously established credit.  Federally backed loans have income-based repayment plans and for those in public service jobs there may be loan forgiveness.

If the federal loans aren’t enough, go first to the bank or credit union where your family does business for a private loan.  At a local bank, rather than a large national chain, you will be able to sit down with a bank official and discuss your needs where large chains may require you to do your loan shopping by phone.

Before you approach the loan officer, think about some options that may be important to you when its time to payback the loans.  Being able to release a co-signer, usually a parent or grandparent, from the loan upon your graduation is a courtesy to the co-signer and a solid business decision on your part. You may be find private loans with options to begin repaying later, or  the ability to stop paying temporarily if you hit a rough patch.

Forbearance is the term for a temporary halt to loan repayment while interest continues to accrue (adding to the total debt. Typically, forbearance is granted for 3 months at a time for up to a year.  Choose a bank with a clear forbearance policy.

In the matter of interest, a fixed rate is a better choice because you will know what the payments will be for the duration of the loan.  Variable rate loans usually have a low rate at the beginning but the rate is morel likely to go up than to go down before you pay off the loan and can change on a fixed schedule or whenever the prime rate changes.

Compare interest rates.  The lower it is, the less  your total payout will be. Borrowing $10,000 at 6.5% will make the total you repay 13,600.  at 5.5% the total will be $13,000.  Three ways to get the  lowest interest rate are to have excellent credit or have a co-signer with excellent credit; choose the shortest term for the loan you think you will be able to manage; sign up for autopay that deducts the payment automatically from a checking or savings account.

Look for discounts.  One common discount is paying the interest during the term of the loan while you are still in college.  Making interest payments can drop your rate by a while per cent. Sallie Mae offers this discount.

In addition to the interest rate, look at all the fees.  Some banks charge disbursement fees (for writing the check to you), origination fees (for processing the application), various administrative fees.  Any or all of these fees can be added to the loan amount or deducted from the amount of the check they write.   Be certain to compare late payment fees and penalties when you shop for a loan.

Keep in mind that you are likely to borrow a similar amount for each year you attend college.  Your repayment schedule should be comfortable when loans for 4 or more years are being repaid at the same time.

Parents, financial aid letters arrive with an offer of admission but are often written in ways that make comparison difficult.  Lets talk about how colleges put together an aid package and how to compare the difficult to understand aid offers.  610-212-6679 or stephanie@accessguidance.com

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