8 Essential Tips to Take Before Choosing a Private Student Loan

Choose a Private Student Loan

As a student, taking the right steps to choose a private student loan is crucial for paying for your education and maintaining financial health. Selecting a private student loan with poor terms or unfavorable interest rates can leave you with a loan amount you may struggle to repay after graduation.

Choosing a private student loan requires taking the time to research and compare options before making a decision. Knowing which steps to take to choose a private student loan will help you find the best interest rates, repayment terms, and lender to finance your higher education and avoid potential financial pitfalls.

How to Choose a Private Student Loan

When choosing private student loans, consider the pros and cons of private student loans and choose the one that helps you meet your educational and financial goals. Before applying for a loan, compare private student loan lenders, including banks, credit unions, and online institutions.

The following steps to choose private student loans can help you navigate the loan selection process and pick the ideal loan for your financial situation.

1. Crunch the Numbers

Before taking out a private student loan, ensure you understand the total cost of borrowing. You can estimate this using an online student loan calculator, which will show you how much you’ll pay each month, how long it will take to repay the loan, and how much interest you’ll pay overall.

Calculate your total expected expenses, including tuition, room and board, textbooks, and other educational costs. This way, you can determine how much you can realistically borrow and repay based on your potential future earnings.

For example, your college costs include the following:

  • $25,000 tuition
  • $5,000 books and class equipment
  • $15,000 dorm and cafeteria plan
  • $5,000 miscellaneous

Your total expenses for a year of college would be $50,000. Even if approved for more, you should only take out this amount to cover your costs. This will limit how much you borrow and have to pay back with interest, lowering your repayment liability after graduation.

2.  Max Your Federal Aid

Maximizing your federal aid from the Department of Education can help you reduce the amount you need for private student loans. Start by filling out the Free Application for Federal Student Aid (FAFSA), which determines your eligibility for federal student aid, including grants, work-study programs, and federal student loans.

Maxing out your federal aid options before considering private student loans can benefit most college students. Federal aid typically offers lower interest rates, flexible repayment options, and federally instated borrower protections, which can save you money on long-term repayment.

3. Look for Scholarships and Grants

Looking for scholarships and grants is a great way to reduce the amount you need to borrow for private student loans. Scholarships and grants are available from various sources, including the federal government, state governments, colleges and universities, and private organizations. Some scholarships and grants are based on merit, such as academic achievement or athletic ability, while others are based on financial need.

To find scholarships and grants, check with your school’s financial aid office, which may have information on available opportunities. You can also search for scholarships and grants online using various scholarship search engines. T&I Credit Union offers the Taylor Jade DeRosa Memorial Scholarship, awarded to two students annually.

Read the eligibility requirements carefully and submit applications on time. By securing scholarships and grants, you can reduce the money you need to borrow to pay for your education.

4. Check Out Multiple Lenders

Comparing multiple lenders is critical in finding the best private student loan option. Lenders may offer varying interest rates, fees, repayment options, and eligibility requirements. Shop around and compare loan terms from various lenders, including online lenders, banks, and credit unions. You can use online comparison tools to compare rates and terms from multiple lenders.

Through Student Choice, T&I Credit Union currently offers private student loans with rate ranges between 9.00% and 10.50% APR for undergraduate loans. If you want to refinance your student loans, T&I Credit Union offers variable rates or fixed rates between 5.75% and 12.50%, with various repayment terms.

When checking with student loan lenders, ask questions about fees, penalties, or hidden costs associated with the loan. It’s also important to consider the lender’s reputation and customer service. By checking with multiple lenders, you can find the loan that best fits your financial situation and minimizes the total cost of borrowing.

5. Line Up a Co-signer

Finding a co-signer can be essential to securing a private student loan, especially if you have a low credit score or limited credit history. A co-signer agrees to be responsible for paying back the loan if you cannot make payments. A co-signer with a good credit score can help you qualify for a loan and get better interest rates.

Potential co-signers can include parents, grandparents, or other individuals with a good credit history willing to take on the responsibility of the loan. When choosing a co-signer, discuss the loan terms and repayment plan, and consider any potential risks to the co-signer’s credit score.

Choose a co-signer carefully and make sure you can repay the loan to avoid damaging your relationship with them.

6. Consider the Real Cost of the Loan

Considering the real cost of the loan is an essential step in choosing a private student loan. The real cost includes the total amount you will need to repay over the life of the loan, including interest charges, fees, and penalties. Calculate the total cost of the loan, including monthly payments and how long it will take to repay the loan.

For example, you take out a $30,000 private loan to pay for college at an APR of 10%. The loan has a 2% origination fee, which brings your repayment balance to $30,600. If your repayment term is 20 years, and you only pay the minimum of $295.30 every month, you’d pay back $70,871.19 in total.

By considering the real cost of the loan, you can choose a loan that best fits your financial situation and minimizes the total cost of borrowing. Taking on too much debt can impact your financial future, so make sure to borrow only what you need and can realistically repay.

7. Ask About Repayment Terms and Benefits

When choosing a private student loan, ask about repayment terms and benefits. Private student loans often have fewer repayment options than federal loans, so it’s essential to understand the repayment options available and how they fit into your financial plan.

Ask the lender about repayment options, including deferment, forbearance, and income-driven repayment plans. You should also ask about any benefits the lender offers, such as interest rate discounts for making on-time or automatic payments. Some lenders may offer rewards or benefits for good credit or consistent payments.

T&I Credit Union partners with Student Choice to offer repayment terms of 20 to 25 years for private student loans. You can also earn a .25% rate discount for enrolling in automatic payments during your full repayment term.

Understanding the repayment terms and benefits of the loan can help you choose a loan that best fits your financial situation and minimizes the total cost of borrowing.

how to choose a private student loan

8. Gather All Your Paperwork

To apply for a private student loan, you will fill out an online application and submit documentation such as your social security number, income verification, and school information. Gather all the necessary paperwork before starting the application process to make it as smooth as possible.

The required documents may vary by lender but typically include recent tax returns, pay stubs, and proof of enrollment or acceptance into a degree program. You will also need a copy of your credit score and credit history.

T&I Credit Union requires at least a 680 for private student loan approval. If you don’t meet this minimum score on your own, you’ll need to ask your co-signer to submit their documentation on the application in addition to your own.

Having all your paperwork in order can help you avoid delays in the application process and increase your chances of getting approved for the loan.

Why a Private Student Loan from T&I Credit Union is a Great Choice

While many private student loan options are available, a T&I Credit Union student loan is an excellent choice for those seeking to finance their education. With competitive interest rates, flexible repayment options, and no origination fees, T&I Credit Union can help you minimize the total cost of borrowing.

T&I Credit Union also offers a co-signer release option, allowing you to remove your co-signer from the loan after a certain period of on-time payments. Our staff can also provide personalized support and guidance throughout the loan application process.

Choosing a private student loan from T&I Credit Union can help you finance your education while minimizing the financial burden of student loan debt.

About Lynn Mayfield

Lynn Mayfield studied business at the University of Kansas and enjoys analyzing new economic trends and how they affect the banking industry’s future. Lynn has worked in loan processing and freelance writing. She enjoys traveling in her free time.

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