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If you have received your financial aid award and still need money for college, private loans may be worth considering. Banks, credit unions, and other lending organizations offer private loans.

First Steps for Private Loans

You take out private loans in your own name. They often require you to apply with a qualified cosigner who has an established credit history. Even if you don’t need a cosigner, using one may still help you obtain a better interest rate. Lenders provide the best rates to borrowers and cosigners with the strongest credit qualifications.

As a general rule, private loans should be the last financial aid option. Always file the Free Application for Federal Student Aid (FAFSA) first, and accept any grants, scholarships, work-study and federal loans offered by your school before taking out a private loan. Federal loans offer more repayment options, income-based programs, and in some cases, loan forgiveness alternatives.

If you decide a private loan is right for you, consider these things when selecting a program.

1. Check to see if your college has a recommended lender list.

Some schools investigate private loan programs and providers on behalf of their students. They provide lists of those they think would best meet their students’ needs. If your school has a list, you can begin there. Your school generally posts school lender lists on their financial aid website. In many cases, the website links you to a third party where your school provided a list of programs. In either case, loan programs are usually listed by feature, so you can compare to see which might best meet your needs. If your school does not have a lender list, you can investigate Credible or other websites which will provide loan program options and help you compare features.

2. Decide which features are the most important to you.

  • Rates – In comparing interest rates, you will see some lenders use an index called London Interbank Offered Rates (LIBOR), and others use the Prime Rate index. Since they aren’t the same, look at the loan programs’ Annual Percentage Rates (APRs). The lowest and highest APR ranges are be displayed. If APRs aren’t listed, be aware that the Prime Rate is typically two to three points higher than LIBOR. The most current rates can be located in the Federal Reserve’s Statistical Release.
  • Fees – Most private loan lenders offer zero application and origination fees. Check all loan programs you are considering to make sure this is true and to determine if there are other fees associated with the loan.
  • Repayment plans and terms – Would you prefer in-school interest payments to keep your costs down? Perhaps multiple repayment period choices like a 5, 10, or a 15 year period are best for you. With private loans, you choose your repayment period at the time you take out your loan. You may also want to check to see if there are deferment or forbearance options if you run into difficulty in repayment.
  • Cosigner release – Your cosigner is responsible for making payments if you do not. The cosigner’s credit report reflects any late or missed payments as well. When investigating options, determine if the program offers a cosigner release, how many payments you will need to make before that is possible, and how involved the release process is.
  • Borrower benefits – Lenders offer a variety of benefits like interest discounts for auto-debit payments, cash back for achieving certain grades, or interest reductions after a specific number of on-time payments. Be sure you determine which are the most important to you and take the required action to meet the requirements.

3. Understand the difference between fixed and variable rates.

As you compare differences between programs, interest rates may be a primary factor. You will need to decide between fixed rates, which may be higher at first but remain the same throughout the life of your loan, or variable rates which may be lower at first but change periodically based on fluctuations in the economy. For more information about the factors to consider before making this decision, go to U-fi From Nelnet’s frequently asked questions.

4. Your rate is the one that matters most.

Lenders may advertise low rates when they share their program’s interest ranges, and many students assume they will receive the lowest rates. See if lenders allow you to use a calculator. If you can enter general information about you and your cosigner, you may be able to obtain a preview of what your interest rate will be before completing the application process and providing authorization for your credit to be pulled.

Private loans can provide a solid financial option for students who need help bridging the gap between financial aid and college costs. Be sure to first research programs fully and understand your responsibilities before taking out any type of education loan. If you have questions, your college financial aid office is the best source of information and guidance about your individual situation.

Undergraduate students graduate with an average of $30,000 in student loan debt. This amount can feel overwhelming. However, there are several tips for saving money on student loans. You can do it while you are in school and after you graduate.

Saving Money on Student Loans Step 1: Only Borrow What You Need

The first step is to only borrow what you need to cover your college costs. Many students over-borrow and end up with more student loan debt than they are able to pay back after graduation. Grants and scholarships usually don’t have to be paid back as long as you continue to meet their requirements. However, these forms of financial aid generally won’t cover all of your college costs. Looking at your federal loan options is your next step. Federal loans will have to be paid back with interest. However, they usually offer borrowers lower interest rates and more flexible terms. Make sure you take advantage of these options before considering a private student loan. Private student loans are a great option when you’ve exhausted all federal aid options and still have college expenses. As with any loan, make sure you understand the terms and conditions.

Saving Money on Student Loans Step 2: Make In-School Payments

The second way to save money on your student loans is to make payments while in school. Most loans will give you a deferred payment option. This means you don’t have to make any payments on your student loans while you’re in school or during your grace period. While it sounds like a good option, interest accrues on your loans during this time. That could mean a larger bill at repayment. If you budget to make full principal and interest payments while still in school, you’ll save the most money over the life of the loan, but that isn’t always feasible for everyone. Another great way to save money is to make interest-only payments while in school. This monthly payment will be much less than a full principal and interest payment, but will set you up for success when you get to repayment.

Entering Repayment

Once you graduate your loans will go into repayment following your grace period. That means you will start making payments toward your full principal and interest payments until the loans are paid off. Federal loans have several repayment options to fit your budget, but keep in mind the lower your payment and the longer your loan term the more interest you will pay over the life of the loan. Make sure you are aware of and take advantage of any borrower benefits your loan servicer offers, such as a lowered interest rate for auto-debit payments.

Refinancing or consolidating your student loans may also be a good option for you.

These are a few of the main ways to save yourself money on your student loans while you’re in school and after you graduate. Knowing your options and paying what you can along the way will set you up for a successful future, free from student loans.

Have you decided to go to graduate school? You may be researching how to pay for tuition and other expenses. You have another decision to make as well – what to do about any undergraduate student loan debt you may have.

If you attend graduate school at least half-time, your loans can be deferred. That means you don’t have to make payments. Although that will provide immediate relief, there are other long-term financial implications to consider. It’s important to look at the kind of undergraduate loans you have before determining how to proceed.

What are the different types of education loans and their in-school interest rate charges?

Federal Subsidized Loans – With these loans, the federal government pays the interest while you are in school at least half-time. An in-school deferment on subsidized loans means you won’t move into repayment until you leave school.

Federal Unsubsidized Loans – Some or all of your federal undergraduate student loan may be unsubsidized, which basically means that you are responsible for the interest, even while in school. You can still defer your payments if you attend at least half-time. But, the interest continues to build, and is capitalized at repayment. Capitalization is unpaid interest that your lender adds to the principal balance of a loan. Future interest then accrues on the larger balance. That can add up.

Private Loans – These loans are taken out from banks, credit bureaus, and other lending organizations. You can generally defer private loan payments while in school at least half-time. However, interest accrues and capitalizes at repayment as well. More information about private loans is located in U-fi From Nelnet’s Frequently Asked Questions.

Tip: Paying any of the interest on private loans or unsubsidized loans each month while in graduate school can help. It can amount to significant savings in the long run.

How do I find out about my undergraduate student loan and my in-school options?

You can go to the National Student Loan Database (NSLDS) to obtain information about your federal undergraduate student loan. There, you will see the types of loans you have and the terms of each. You can also see the federal loan servicer(s) to whom your loans have been assigned. To find out about your private loans and servicers, check with your lender. Federal and private loan servicers work with you during school. They are also responsible for billing, collection, and information services provided throughout your undergraduate student loan repayment period.

You may wonder how servicers will know that you are in school and eligible for deferment. Your federal servicer(s) receive notification of your in-school status. This happens when your school reports enrollment information as part of their regular administrative procedures. Federal servicers automatically place you in deferment status and notify you. Make sure your private loan servicers know you are in school. Contact them and submit any required information, if needed.

Tip: Your servicers can advise you about the best in-school payment options. For example, working at a non-profit organization or at certain income levels may put you on a different repayment track for federal loans. It’s wise to take advantage of your servicers’ individualized counseling before making any decisions about how to handle your loans before, during, or after graduate school.

Do I have other loan management options for my private loans?

If you took out private loans as an undergraduate, you may want to explore whether refinancing your loans into one new private loan is a viable option before entering graduate school. If your undergraduate private loans have higher interest rates than those currently available, or if you would like to combine multiple loans into one loan, refinancing may be a good choice for you. Private refinance loans are based on credit and you may need a cosigner to get the best rate. Refinance loans usually offer in-school deferment options if you attend school at least half-time. Interest accrues and will be capitalized at repayment.

Be cautious about including federal loans in a refinance loan. Even if the rate is lower, you will lose loan forgiveness, income-driven repayment options, and some other features available only in federal programs.

What about the loans I’ll take out while in grad school?

Since subsidized federal loans are not available to graduate students, interest accrues on both federal and private loans while you’re in school. If you are unable to make interest payments on all of your loans while in graduate school, consider paying interest on the highest rate loan(s) first. Any progress you can make on paying interest will put you in a better position when you move into loan repayment.

Talking with your federal and private loans servicers can help you determine the best options in your specific situation. Education loan management can seem complicated. Your servicers can look at your accounts and provide information about the best choices for you.

Considering paying off your student loan debt with your tax return or just a lump sum of money? There can be more to larger payments than meets the eye. Follow these steps to learn how to make the most of your lump sum payment.

1. Make a List

Knowing which loans you want to pay off first will help you get the most bang for your buck. Make a list of all of your federal and private student loans, the balances, and the interest rates. Then, based on your goals, weigh your options. You could put your lump sum payment toward your highest interest rate loans, or pay off your low-balance loans first. Paying off your highest interest rate loans reduces the amount of interest you pay. It also saves you money over the life of the loan. Paying off your lowest balance loans first could save you money on your monthly payment. Paying off your lower-balance loans allows you to put money saved from a lower payment toward your other student loans. This can help you to pay them off faster.

2. Talk to Your Loan Servicer

Check to make sure your loan servicer knows how you want your payments applied to your student loans. If you pay above the minimum payment and don’t specify how you want payments applied, your loan servicer decides for you.

Below is a sample letter put together by the Consumer Financial Protection Bureau (CFPB) that you can send to your loan servicer to ensure payments above your minimum monthly payment amount are being applied to the correct loan(s). For some loan servicers, this can be done online.

I am writing to provide you instructions on how to apply excess payments greater than the minimum amount due. Please apply payments as follows:

  1. After applying the minimum amount due for each loan, apply any additional amount to the loan accruing the highest interest rate.
  2. If there are multiple loans with the same interest rate, please apply the additional amount to the loan with the lowest outstanding principal balance.
  3. If any additional amount above the minimum amount due ends up paying off an individual loan, please then apply any remaining part of my payment to the loan with the next highest interest rate.

It is possible that I may find an option to refinance my loans to a lower rate with another lender. If this lender or any third party makes payments to my account on my behalf, use the instructions outlined above.

Retain these instructions. Please apply these instructions to all future overpayments. Please confirm these payments will be processed as specified. Otherwise, please provide an explanation as to why you are unable to follow these instructions.

3. Things to Keep In Mind

There are a few other things to be mindful of once you’ve decided where to apply your lump sum payment.

  1. Follow up with your loan servicer. Call or check your accounts online to make sure your payment was applied as specified.
  2. Making a payment larger than your minimum payment amount can sometimes advance your due date. This means another payment on your student loans won’t be due until your minimum payments catch up to your lump sum payment. While it can be nice to skip a few months of student loan payments, your loans still accrue interest and won’t save you any money. Even if your due date advances, continue to make your monthly payments to save yourself money in the long run.
  3. You can also save money on your student loans by refinancing. Refinancing allows you to combine both your federal and private student loans into a new loan with a new repayment term and interest rate, which can often save money over the life of the loan, or help lower your monthly payment.

Paying off your student loans is a great accomplishment. As you begin to make decisions around your personal finances, make sure to keep these tips in mind so that you can make the best choices for your financial future.