Borrowing to pay for some college costs is a reality for the majority of students. For those students and their families, researching options and knowing what to expect, though, can help ensure responsible borrowing for college.
Financial Aid and Student Loan Basics
Completing the FAFSA (Free Application for Federal Student Aid) is the first step in paying for college, as financial aid offices use the FAFSA results to determine how much and what types of financial aid to offer a student. As students and parents review financial aid notifications from different colleges, it's good to know the difference between types of financial aid offered.
If borrowing to cover expenses is necessary, students should start with federal subsidized and unsubsidized loans, which are included in financial aid notifications. These loans, which are offered by the federal government, typically have better rates, repayment assistance and protections than other types of loans, including other types of federal loans. Before applying for a student loan, students and parents should be sure to know which student loans are right for them.
Research Private Education Loan Options
If financial aid, including subsidized and unsubsidized federal student loans, and other funding sources is not enough to cover all college costs, private education loans are an option for students and families. It's important that students and parents check out different options and compare the pros and cons of each loan. Education loans typically have repayment terms of 10–15 years or even longer, so finding the loan that works best for the student's or family's current and long-term budget can be critical.
Students and families may want to consider:
- Interest rates. (Be sure to look at both the low and the high numbers as very few borrowers qualify for a lender's best rate.)
- The length of repayment. (Typically, the longer the repayment term, the more the loan will cost overall. On the other hand, a longer repayment term can mean paying less each month.)
- Fees. (Does the lender charge origination fees, prepayment penalties or late payment fees?)
- Overall costs. (Rates are only one element of a loan; the overall costs or finance charges can show how much a borrower will spend.)
- Repayment options. (More lenders are offering options for borrowers to make small payments during college years to reduce overall costs.)
It's also a good idea to determine how clear a lender is about offering specific loan details upfront. Some lenders provide vague information about how to qualify and offer ranges for possible rate and repayment terms without breaking down the differences. Other lenders, like ISL Education Lending, will detail out how their rates vary based on the different in-school repayment option selected and provide specifics on how rates are determined.
Also, see if the college's financial aid office maintains a preferred lender list to compare rates and other loan program details.
Applying for a Private Student Loan
After determining which loan is best for the student or family member borrowing the money, it's time to apply. Nearly all lenders use an online application that will require basic personal information about the borrower and, if the student is not the borrower, the student, as well as any cosigners.
Be sure to have details like the borrower's and student's Social Security numbers on hand before starting. At some point while applying, the borrower will need to provide names of references and their contact information. These references, typically one family member and one friend who does not live with the borrower, will not be contacted during the application process. Instead, references may be contacted in the future if the lender is unable to reach the borrower by phone or mail. Typically, cosigners complete their portion of the application after the borrower applies and submits their application.
After the application is submitted or during the application process, the lender will request a credit report from one of the national consumer reporting agencies to determine the borrower's or cosigner's creditworthiness and credit score. Copies of documents like paystubs or tax returns may be required by the lender to complete an underwriting review and approve the application.
If the borrower meets the requirements to receive the loan, most private education loan lenders require that the college or university certify the amount the student needs to help prevent overborrowing by the student. If the borrower has requested more than the cost of attendance allows, the loan amount may be reduced.
After the Application Is Approved
After an application is approved, the borrower will receive a loan offer. If the student or family member is happy with the offer and interest rate, they accept the loan offer and final disclosure documents are provided. More and more, these required federal documents are provided online to speed up the review process.
It's important to note that the U.S. Department of Education requires that students complete a Private Education Loan Applicant Self-Certification form after a loan offer is accepted and before the loan funds can be sent to the student's college or university. Not completing this form can cause delays in the money being sent to the financial aid office.
Loans Can Be Canceled
If the student or family member taking out the loan is unhappy with the rates they are offered, they do not have to accept the loan offer. Typically, borrowers have 30 days to decide whether to accept a loan offer or not. If the rates are not as low as expected, students or families can apply for a loan with a different lender or lenders to see if they qualify for better rates. Applying for multiple loans in a short amount of time has no greater impact on a person's credit score than applying for one loan, as credit reporting rules have been changed over time to allow consumers more time to shop around for the best loan.
Even if a loan is accepted but the money has not been disbursed (or sent) to the college, borrowers have the option to cancel the loan or decrease the loan amount with no consequences.
Learn About Our Products
We offer the Partnership Advance Education Loan for student borrowers and the College Family Loan for parents or families who want to help a student with college costs. Those applying for our College Family Loan can see their rate in less than a minute with no impact to their credit.
