Private Student Loans – What You Need to Know!

That student loan you saw on MTV seemed GREAT!! Borrow for all of your school expenses, and get the check straight to you! But did you see the fine print? Do you know the details on the loan, and what its true costs will be? Do you know WHY the interest rate matters? What about fees? Keep reading for some helpful hints on ways to stay out of trouble!

1: I have no credit and I will never get a loan.

Talk to your Financial Aid Officers, Student Account Officer (Bursar) and the Student Financial Resources Ombudsperson. They are truly experts in student loans, and may be able to help you find one that will fit your circumstances AND give you a reasonable rate.

2: Why should the school tell me how much I can borrow? I need the money, and I’m paying it back.

We all “need” money. We don’t “need” to borrow it at high interest rates. Your school has created a reasonable budget for the nine months you’ll be on campus. It doesn’t include expensive handbags or spring break trips. If you can afford those things with your own money, great. Don’t take out a private loan if you can’t.

3. How bad can it be? The interest won’t add up that much.

Oh really? Did you check out the repayment calculator? Let’s say you borrowed $10,000 in a private loan that went right to you. The interest rate is around 10 % and you are going to start repaying the loan in 52 months (four years of school, six month grace period after you graduate). Interest is accruing when you receive the funds. So, that $10,000 you borrowed now has another $4,433 added to it in interest when you start repayment. How long will it take you to earn that kind of money? And if you borrow every year you’re enrolled, you can see how it will add up. Think before you borrow! (Calculation done on the finaid.org website on 8/21/07, with interest capitalized once at repayment. Interest rates may be higher or lower for many private loans, based on the borrower’s credit score.) And let’s not forget the fees that are either added to or taken from your loan. That can also jump up the balance before you realize it.

4. What if I change my mind? I can send the money back, right?

Read the fine print. You might still be responsible for any origination fees and accumulated interest if you have cashed the check, unless you return the funds before a specified period of time.

5. I really need help! What should I do?

Contact your Financial Aid/Student Account/ Student Financial Ombudsperson office to help you. They are able to explain the terms and conditions of certain loans for you. They also have reviewed a number of loan programs and can help you choose the one that’s right for you.