Choosing a Lender: Tips to Help You Make Informed Student Loan Decisions
If you’re a student who’s relying on your parents to pay for your education, you might think that you don’t have to worry about student loans – but the majority of college students (namely their parents) take out loans, and they have to be paid back eventually. Your parents may expect you to make loan payments, and if that’s the case, you’ll want to do your part in choosing a lender. Speaking from experience, your parents won’t always make the best choice, so take an interest in your financial future and learn how to choose the best lender for your needs.
First, you’ll need to decide what kind of a loan you’d like to take out. If you haven’t dipped into your federal loan allowance yet, now is probably the time to do it – it’s much cheaper than taking out a private loan or messing around with non-education loans. It’s also one of the easiest options, with a high rate of flexibility. Most financial aid offices recommend that students take out federal Stafford loans, but it’s up to you to choose your specific lender. With a Stafford loan, you can be a half-time student and still not have to repay until you graduate, which is just one of the ways this lender stays flexible to help you out. Other options include Perkins, PLUS (through your parents), and any private lenders you might want to check out.
You can get interest rate reductions, waived default and origination fees, principal balance reductions, and other discounts for keeping your payments on time. Depending on the lender, you might have to make the first 12-48 monthly payments on time plus every payment afterwards to get and keep your benefits. Make sure you know what your lender is offering in terms of benefits and compare them with other options to get the best deal. A good way to keep your payments on time is to set up an automatic deduction from your bank account, but if you overdraw, you’ll lose your benefits.
Consolidation & Graduated Repayment
If your lender offers one or both of these options, you’ll be able to get a little flexibility with your payments. By allowing you to consolidate your loans, your lender will let you decrease the amount of your monthly payment – but you’ll have to make your payments for a longer period of time. This is a good option if you find yourself suddenly unable to make a larger payment. Graduated repayment is also helpful and allows you to base your payment on your income – a smaller income means a smaller payment, and once you’re making more money, you can make a larger monthly payment to get your loans paid off as soon as possible.
This is your safety net, so be sure to ask about it and understand it well. If you’re unable to make your payments, some lenders will lower your payment amount or defer payments until you have enough to start paying again. Hopefully, you’ll never need to use it, but it’s important to make sure that you have something to fall back on just in case.
Even while you’re in school and not making payments, some lenders add interest to your account – it might happen once a year or once every three months, but it’s something you don’t want. Try to find a lender that will defer capitalization until you start repaying your loan – this will help you avoid unnecessarily higher loan payments can keep your balance at its original amount until you start repayment. Watch for “one-time capitalization” to get the best deal.
You don’t want a lender who won’t answer or give you the information you need when you call. Good customer service is important – again, hopefully you won’t have to use it, but if you ever come across an inconsistency, you’ll need to talk to your lender or servicer. Test it out by making some calls before choosing a lender.
Many lenders sell their loans to other lenders and/or the secondary market so they’ll have enough money to keep lending to more students. This isn’t a problem, but one thing you might want to look for is a lender that sells to only one secondary market. By taking out all of your loans from this lender, you’ll reduce any potential confusion because they’ll all be in the same place.
No matter which lender you choose, take the time to do your homework and understand what you’re getting into. It’s also a good idea to solidify repayment details with your parents – will you be responsible for all payments or just some, and if so, how many? Planning ahead like this will prevent nasty surprises and help you keep your finances in perspective, enabling you to make timely payments and receive the benefits you deserve.
Maria Rainier is a freelance writer and blog junkie. She is currently a resident blogger at First in Education, where recently she’s been researching different pharmacist degrees and blogging about student life. In her spare time, she enjoys square-foot gardening, swimming, and avoiding her laptop.