Funding a college education is a huge financial obligation. Money from personal savings, scholarships, grants, and state and federal student loan programs isn't always enough to cover tuition costs, fees, room and board, and the books and other supplies you need for your college courses. You also need money to cover other living expenses while you are attending school.
Once you've looked into all other sources of financial aid and funding, a personal student loan can help you cover any costs remaining. However, before applying for a personal loan, there are several factors to consider.
Meeting the Qualification Requirements
Qualifying for a personal student loan on your own isn't always easy, especially if you have little or no credit history. But a cosigner with a strong credit history can help get you the loan. Both you and your cosigner must show proof of income and sign a promissory note guaranteeing that you will repay the loan principal and all interest that accrues over the life of the loan.
If you don't have a cosigner, the lender may still approve you for a loan if you secure the loan with a down payment or security deposit. Providing the lender with some type of collateral can also get you a lower interest rate.
In addition to the lender's required financial qualifications, you must be enrolled at least half-time in a degree program at an accredited college, university, or vocational or trade school. Generally, lenders require an official enrollment verification from the school.
Understanding the Terms of Your Repayment Plan
While lenders vary in their repayment plans and the interest rates they charge, it's important not to borrow more money than you need or can afford to pay back. Having a cosigner with good credit can help get you a lower interest rate, which keeps down the total cost of your loan. A lower interest rate usually means a lower monthly payment.
If the lender offers you a deferred payment option, you can postpone repayment of the loan until after you graduate. Keep in mind interest continues to accrue during the deferral period, increasing the amount you must repay. You are also responsible for repaying the loan even if you don't complete your education or can't get a job in your chosen field after graduation.
Paying off the loan early can cost you money as well. Many lenders charge penalty fees for early repayment. Penalty fees are just one reason why you shouldn't sign the loan agreement until you've read all the documents carefully. It's important to make certain you understand the terms and conditions of the loan for which you have been approved.
Utilizing Your Other Options
Although personal student loans can help finance your continuing education, you should first apply for other forms of funding for which you might qualify.
Complete and submit the Free Application for Federal Student Aid (FAFSA) form to apply for federal and state loans and grants.
Apply for any scholarships for which you might be eligible.
Tap into an education savings plan in which you or your family were enrolled.
Defaulting on a personal student loan can have long-term financial implications; therefore, you need to consider your ability to repay the debt now and in the future. Like any other loan, compare lender rates and repayment terms before choosing a lender.
To learn more about taking out a loan, talk with a financial professional at a place like Union State Bank.