How To Be A ... Private Loan Private Eye
If your scholarships, federal loans, and other financial aid aren't enough to cover your education costs, you may decide to use private loans to make up the difference. And you won't be alone—students borrow $7–$9 billion in private loans each year.
Private lenders all have an angle, and their fees, interest rates, and terms vary from one to the next. By doing some detective work before you borrow, choosing a private loan that works for you won't be a mystery at all.
Watch Out For Advertised Interest Rates
Private loan interest rates are usually based on your credit. If a lender advertises a low rate, it may be a red herring—you likely won't find out your actual rate until after you apply.
Get Wise To Hidden Fees
Some private loans come with more fees than others. Give lenders the third degree to find out if they charge for things that others include for free (like a repayment or guarantee fee).
JUST THE FACTS
12%: The amount of the nation's total student debt that private student loan borrowers currently hold.
$91 Billion: The total amount of outstanding private student loan debt in the United States.
29%: The percentage of undergrads in their fourth year or above that borrowed nonfederal loans during the 2011–2012 school year.
$14,900: The average amount of nonfederal debt borrowed by those same undergrads during the 2011–2012 school year.
Look Out For Your Payment Due Date
Would you rather start repaying your loan now or after you leave school? Different lenders expect you to pay at different times. Follow your hunch on this one.
Investigate Your Repayment Options
Some private lenders allow you to apply for lower monthly payments or let you temporarily pause payments under certain circumstances. They aren't required to do this, though, and they might charge fees for these benefits.
You May Need A Partner To Co-sign Your Loan Application
About 90% of private loans require you to have a co-signer who will become responsible for the debt if you fail to repay. This is because student borrowers usually have very little credit history—making them a risky bet for lenders.
Your co-signer will be putting their credit on the line for you, so this is a serious responsibility. You owe it to them to make on-time payments—which will have a positive impact on their credit score and yours.
Figure Out Your Monthly And Total Payment Amounts
You'l usually pay less each month if a lender gives you a longer repayment period, but you'll pay more in interest over the life of the loan. On the other hand, shorter repayment periods may mean higher monthly payments.
Check The CFPB For Clues
The Consumer Financial Protection Bureau (CFPB) website offers annual reports detailing the frequency and nature of complaints filed against private lenders. If too many other borrowers are throwing the book at a lender, you may want to choose a different one.
Make It An Open-And-Shut Case
When private lenders process your application, they do a hard inquiry on your credit report. Several of these in a short time period will generally damage your credit score.
There is an exception to this rule, though. Any hard credit inquiries made within a 2-week window will only count as one inquiry.
Once you've identified some potential lenders, close your case quickly by submitting all of your applications at once. Just be sure to decline any loans you don’t want if you're approved for more than one.
Consumer Action: consumer-action.org
Consumer Bankers Association: privatestudentloanfacts.com
International Business Times: ibtimes.com
National Center For Education Statistics: nces.ed.gov
Project On Student Debt: ticas.org/posd