Out of the nearly 20 million students attending college each year, 60 percent take out loans to pay for their education, according to the Chronicle of Higher Education. In 2014, The College Board reported that the average in-state public college cost $18,391 and private education cost around $40,917 a year. If you’ve been accepted to an Ivy League school like Harvard or Columbia, expect to pay even more.
Unfortunately, in 2014, the maximum amount an independent (unsupported by parents) undergraduate student can take out in federal student loans during their first year of college is $9,500. That doesn’t even cover a fourth of the cost of tuition at most private colleges.
Don’t let the price of your education get in the way of attending the school of your choice. There are private student loans available to you that will pay for the college costs federal loans can’t cover.
Get educated about private student loans
Want to know how to get a student loan? If you need a private loan to cover the cost of your education, there are a few things you should do to prepare.
- Maintain good credit and/or find a cosigner. Many students with limited or poor credit will not qualify for a private student loan on their own. In that case, a cosigner (like one of your parents) is recommended. Remember, the better the credit, the lower interest rate and the more you can borrow. So, keep track of your credit score and pay your bills on time.
- Understand how much you can (and should) borrow. Many Students turn to private loans because federal ones cannot cover their educational expenses. This is because private student loans for undergraduate and graduate programs tend to allow higher aggregate (federal and private) borrowing limits. Check with the lenders you are considering to learn specifics about their borrowing limits.
- Calculate your other expenses. Loans for students aren’t only meant to pay for your tuition. They can also cover other education-related expenses, like room and board, books, and transportation.
Understand interest rates and repayment terms
When you take out any loan, you will have to pay interest on it. The higher the interest rate and the longer the repayment terms, the more you will have to pay. That’s why it’s important to become interest-rate literate before you take out any loan.
- Know your interest rates. Most private loans for students measure their interest rates by the LIBOR rate (London Interbank Offer Rate) or the Prime rate (PRIME). How high your interest rate will be in relation to the LIBOR will depend on several factors, such as your term, repayment structure, credit score and cosigner’s (if applicable) credit score.
- Grasp the difference between variable and fixed interest rates. Fixed-interest rates are based on applicable terms, degree selected and presence of a co-signer or qualified credit score and don’t change after you have signed your loan agreement. Variable rates increase or decrease throughout the life of your loan based on the LIBOR.
- Understand repayment terms. Private loans for students usually come with 5, 10, 15, or 20 year repayment terms. While longer repayment terms mean lower monthly payments, they also mean paying back more over the long term in interest.
Shop around for the best private loans for you
When choosing loans for college it’s important to spend some time researching your options before you apply. Browse several banks and compare their loan options. Here’s a handy checklist of things to consider while comparing loans for college:
- Low interest rates
- A loan limit that covers your expenses
- Flexible repayment terms
- Reasonable monthly payments
- A grace period and/or deferment options
- No prepayment penalty for paying off your balance early
- No hidden or additional fees
Remember, you’ll have to pay your loans for college back
A loan is not free money. You’ll have to pay it back, so try not to borrow more that you think you’ll be able to afford to repay. Consider getting student loan help from a loan counselor at your college or university before taking out any loans for college.
Content was created and provided by RBS Citizens Financial Group.
Subscribe to get the free Master Your Money course!
Join the free email course and finally learn how to manage your money better, pay off debt, save more money, and reach financial freedom. Get our newsletter and get access to the freebie: