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The holidays are over and the new year brings a new semester. For many students, that means a new round of bills and education expenses. That means it’s a perfect time to evaluate your finances and make sure your budget is in the right place.

If you attended college in the fall, you may have relied on financial aid to help cover your education expenses. With a new semester about to begin, you may want to reconsider your options. Many students still owe a balance from fall semester. Meanwhile, others just realized they may need additional funding to help pay for the upcoming semester. Use this time to take stock of your financial resources and make a plan to ensure everything is covered.

Do you still owe a balance on outstanding charges from your fall semester?

You may be required to fully satisfy outstanding charges before you can complete your enrollment for the next semester. Make sure you take care of the previous balance as soon as possible. That way, you avoid any potential delays with your upcoming enrollment. If you didn’t have enough financial aid or personal resources to pay your prior semester’s bills in full, consider a private loan to help cover what you still owe. You can find private loan solutions at U-fi.com.

Did you apply for financial aid either before or during the previous semester?

It’s always a good idea to apply for financial aid by completing the Free Application for Federal Student Aid, or FAFSA, even if you don’t think you’ll qualify. Not everyone qualifies for grants or other “free” money. But, you may qualify for federal student loans, like unsubsidized loans, which are not based on financial need. You can still complete the FAFSA, even after the school year has started. It’s free and doesn’t take much time, so it’s worthwhile to submit. That way, you’ll know you’re not missing out on any financial aid programs.

What are your education expenses going to be in the upcoming semester?

By January, you should have an idea of your direct college expenses are for the upcoming semester. These education expenses including tuition, books, housing, and other costs. Do you have financial aid that pays for everything, or do you still have a gap where additional money is needed? Make sure you look at your full semester and anticipate all of your expenses. Set a budget so you’ll know exactly what your expenses are. Make sure to keep track of what types of income or financial resources can cover those expenses. Use all the financial aid resources available to you, including federal loans, to help pay your costs of attending college. If you still find yourself in need of additional money, you can explore the possibility of a private education loan at U-fi.com and find a solution to help cover your college expenses.

When should you apply for next school year’s financial aid?

In case you missed it, you can now complete the FAFSA starting on October 1 for the following school year. You may only be halfway through the 2018-2019 school year, but it’s already time to submit your FAFSA for the 2019-2020 year. If you haven’t completed the FAFSA for next year, it’s important to get that taken care of as soon as possible. With the earlier submission date for the FAFSA, it’s critical to get your application in as quickly as possible so you don’t miss any priority deadlines for state grant aid or other types of aid that may not be available if you apply too late.

For more tips and resources on planning and paying for college, visit U-fi.com. Remember, now is the time to make sure you have everything in order for the current semester and for the next school year.

You’re in college and on your own, but you may still experience the occasional financial pitfall. Below are money mistakes many students make, and some tips on how to avoid them.

Financial Pitfall #1: Spending all your living expense money early in the semester.

You’ve probably set aside spending money for personal expenses if you live off campus. Or, you may have financial aid funds to use for room, board, or other educational expenses. That money needs to last through the entire semester, but many students spend it within the first few months. How can you avoid spending your money too early? Use these financial management tips and this budget worksheet to help develop a monthly spending plan.

Financial Pitfall #2: Not taking advantage of part-time employment opportunities.

Most schools offer part-time employment options for students through Federal Work-Study, and by posting on- and off-campus jobs. You might worry that a job will conflict with academic work, but studies show that students who work between 15 and 20 hours while in school are generally more confident and successful. Having a job helps bring in money regularly throughout the semester and can help build your resume. Your college financial aid office awards Federal Work-Study and generally posts related job opportunities. Work-Study is based on financial need and requires a Free Application for Federal Student Aid (FAFSA) . Other part-time jobs may be posted by the Career Office, Student Affairs, or other places on campus. Check your school website for more information.

Financial Pitfall #3: Accumulating credit card debt.

You’ve probably already received credit card offers in the mail. You may also notice giveaways and travel rewards that make the offers sound appealing. Be careful – as a new credit card holder, your interest rates will be high, and credit card offers tend to have many fees attached. Be sure to read the fine print and note that the initial low interest rate offered may expire in just a few months. You can quickly accumulate credit card balances that can swell out of control, especially if you’re only making minimum payments. Here’s an overview of credit card pros and cons, along with additional information about other matters to consider.

Financial Pitfall #4: Taking out student loans without understanding them.

Student loans are so common that students often see them as just another type of financial aid. There is an important difference; student loans must be paid back. While student loans can be a useful way to pay for your education, keep your borrowing to a minimum. Know what your monthly loan payment will be when you get out of school. Understand what you can realistically afford to borrow. It is also important to know the types of loans, the terms of those loans, and the options available. To get a general idea of what your monthly loan payment may be when you finish school, Federal Student Aid provides an easy-to-use repayment calculator.

The earlier you can learn the basics about managing your finances, the better off you’ll be in the long run. These simple steps should help you build the foundation you need for a successful financial future.

Whether entering college after high school or transitioning from full-time employment, your financial picture will change as a student. The summer is a good time to prepare for that change. College may be the first time you manage finances on your own. Or, you may be cutting back on your work hours and living on a lower income while attending school. Either way, these six tips for understanding education costs can help you develop a financial plan for the months ahead.

Create a Budget

Maybe you’re coming to school with money you’ve saved for personal expenses. Perhaps you have a family-provided bank account. Maybe you have financial aid designated for living costs. Either way, you probably have a lump sum which needs to last throughout the term. Establishing a budget that considers your available funds and expenses helps stretch that money instead of spending it upfront. Budgets take self-discipline and planning, but they are well worth the effort. They can play a big part in understanding education costs. Use this helpful budget worksheet to get started.

Don’t Borrow More Than You Need

Student loans come primarily from federal or private sources. After federal loan funds are exhausted, some students turn to private student loans to help cover expenses. Student loans provide money to help with college costs. But, you need to repay those funds with interest after you leave school. It’s sometimes easy for students to develop an, “I’ll worry about that tomorrow” attitude about borrowing. They often take out more than they need. While they are a good investment in your education, loans can add up. They can become a large financial commitment for years after you leave school. This is especially true if you start using student loans for living expenses. Our advice: only borrow what you need for college bills.

Work Part-Time While You’re in School

A big part of understanding education costs is realizing what you need. Getting a part-time job can bring money in on a regular basis while you’re in school. It can also keep you from using student loans or credit cards to cover personal expenses. There are two different types of jobs: Federal Work-Study, which would have been included on your financial aid award letter, or a part-time job that you obtain on your own. Colleges often have job boards that identify positions as one or the other. You can also look on local job websites for part-time employment. Businesses in college towns often rely on students as a part-time workforce. Concerned about work conflicting with your coursework? Studies show students who work less than 20 hours a week actually do better academically. They are also more likely to graduate.

Be Careful with Credit Cards

College students often receive credit card offers in the mail, online, and at concerts and events. Those free t-shirts and travel mile offers entice new banking customers, but they may not be worth it. While wise use of credit is a move toward financial independence, overuse of credit can cause financial pressure. It can compete with your academic and financial goals. Read the small print, take out the best rate with the lowest fees, and use credit sparingly, if at all. If you do decide to take out a credit card, the best way to use credit is to pay it off completely every month. That way, you can develop a positive credit history, but not accrue interest and fees that can take years to repay.

Understand Your Financial Aid

Students who go directly to college from high school often rely on parents to complete financial aid forms, review financial aid, and pay college bills. However, understanding education costs is an important part of knowing you are responsible for keeping that financial aid. You must make Satisfactory Academic Progress, get a job, if eligible, for Federal Work-Study, and repay the loan you have taken out. When you are in school, the financial aid office will reach out to you to take action or answer questions about your financial aid. It’s important for you to understand your financial aid and the corresponding responsibilities.

Protect Your Personal Information

As a student, you may be a primary target of identity theft. Students tend to be more trusting, have new and unblemished credit, and are unfamiliar with the ways their information can be compromised. Be sure to protect personal information like your Social Security number, date of birth, driver’s license number, bank account numbers, PIN numbers, and other related information. Avoid shopping online on public computers and keep personal documents and information in highly secure places. More helpful tips are located in this How to Avoid Identity Theft fact sheet.

Although your income will be lower when you are a college student, you’re certainly not alone. Your classmates are in the same situation, struggling with understanding education costs. As a general rule, think of the long run instead of just current wants or needs when making financial decisions. If you make smart financial decisions while attending school, you can use your college years to form a strong foundation for the future, both academically and financially.

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’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.

Most students need to borrow money to cover the cost of their college education. It’s important to understand the borrowing options available. If you completed the Free Application for Federal Student Aid (FAFSA) and received an award letter from your college financial aid office, you’ll likely have the option to borrow through the federal loan program called the Direct Loan Program, or simply known as Direct Loans. In the Direct Loan Program, you can borrow through the Direct Subsidized Loan or the Direct Unsubsidized Loan programs. Graduate students and parents of dependent students can also borrow in the Direct PLUS Loan program. These are all federal loan programs as opposed to private, and are generally your first option.

Direct Loans

If you’re an undergraduate student, you’ll want to explore Direct Subsidized and Unsubsidized Loans first. A subsidized loan simply means that you do not incur any interest charges while you’re in school. You can receive a Direct Subsidized Loan if you have financial need as determined by the results of your FAFSA. A Direct Unsubsidized Loan may also be available to you. As you might guess, the unsubsidized loan means that you are responsible for interest that accrues on the loan while you are in school.

Private Loans

After you’ve exhausted your federal loan options, you may still have outstanding expenses at your college. That’s when you might seek additional funding options in the form of a private loan. While your college financial aid office will instruct you on how to apply for federal loans, you’ll need to determine which private loan lender you want to use. Some schools may provide you with a list of private loan providers for you to evaluate and select. Other schools may simply direct you to find a private loan provider on your own.

Federal vs. Private

A few years ago, there were significant differences in federal loans and private loans. Now, the programs have many similarities and offer unique benefits. The chart below outlines some key factors in the federal and private loan programs.

Ufi-Loan-Type-Comparison

As you can see from the chart, there are a lot of similarities in both programs. Trying to decide between the two? Here are some important factors to consider:

  • If you’re an undergraduate student, in most cases you will have a more favorable interest rate and loan terms with a federal loan. If you think you’ll be entering any type of career that might qualify for Public Service Loan Forgiveness, you will want to stay with federal loans when possible. Private loans do not typically offer any type of forgiveness for public service.
  • Federal loans typically provide a greater array of repayment options, including income-driven repayment plans. Most private loan providers do not offer repayment plans tied to your income.
  • If you can afford to make a higher monthly payment over a shorter repayment period, you may find a lower interest rate with a private loan.
  • Many borrowers, especially undergraduate students, find it necessary to use a cosigner for their private student loans. Learn more about the benefits of having a cosigners here.

Complete the FAFSA

Regardless of what type of funding you’re considering, you will generally still want to complete the FAFSA to take advantage of all the financial aid opportunities available to you before borrowing any type of loan. Check out your federal loan options first and then turn to private loans only when necessary to cover additional school costs. Do your research to get a full understanding to know your options and be an informed consumer. If you do consider private loan options, not all private loans or lenders are the same. You may find significant differences between private loan providers, so find one that best fits your needs and circumstances.

Like most college students, you’re probably planning to work a summer job to help pay for school next year. If you currently receive college financial aid, you may be wondering how your summer job will affect your aid eligibility. Below is helpful information to help you understand the impact of your student earnings on your college financial aid.

FAFSA and EFC

First, let’s spend a moment refreshing your memory about the Free Application for Federal Student Aid (FASFA) and your Estimated Financial Contribution (EFC). These topics are essential in understanding how your earnings can affect your financial aid. To qualify for financial aid, the FAFSA must be filed each year you attend college. The FAFSA collects information about your family income and assets. This information is part of a formula which calculates your family’s EFC for college. If you are financially dependent, your parents’ information and yours will be used. If you are financially independent or a graduate student, the EFC will be calculated using your information only. You school then deducts the EFC from the total Cost of Attendance to calculate your financial aid eligibility.

How much of your earnings will be included in the EFC? The good news is that there is an earnings threshold before any contribution from student income is considered. For the EFC formula for the 2016-2017 academic year, dependent students can earn up to $6400 and independent students with no dependents can earn up to $9960 before any contribution is expected. After that, a percentage of your income will be used in the EFC calculation.

Income

Is it still worth it to earn more than the income threshold each year? The numbers would indicate that the answer is yes. Since the EFC considers only a percentage of your earnings, you will net more than you contribute toward college.

Here are some important facts you should know:

  1. Federal Work-Study is not included in your EFC. Since work-study is a form of financial aid your school awards, any earnings you receive do not factor into the formula. Read the directions and do not report your Federal Work-Study earnings on your FAFSA.
  2. Each year the FAFSA will be based on income from a previous year. For instance, when you next file the FAFSA, available in October 2016, you will report income information from the 2015 calendar year. You report the income you earn this year on the FASFA available in October 2017 or 2018. That reporting timeframe is important for planning purposes. Bear in mind that the 2017-2018 FAFSA will also introduce some changes to how you report income.
  3. Be cautious about double-reporting earnings. In theory, you use your earnings this year for college, so they will probably not be in a savings account when you file your FAFSA next year. You should be aware that the EFC calculation considers both your savings and earnings when determining student contributions toward college expenses. If you use the money you earned from income to pay upcoming college bills, read the FASFA directions. Only true savings need to be reported.

Although we can provide general guidance, it is always best to check with your college financial aid office to learn the best option for your specific situation. They can tell you more about how your current earnings, including your summer job, may affect your financial aid in future years.

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’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.

Ever taken out or refinanced your student loans? You probably know the interest rate of your loan, and may have seen the letters APR on your statement. (APR stands for Annual Percentage Rate.) Understanding the difference between the interest rate and the APR is important. While they both measure the cost of borrowing money, they are not the same. Knowing the difference could save you thousands of dollars on your student loans.

What is the difference between the student loan interest rate and the APR?

The interest rate on a student loan is the cost to borrow money. It is shown as a percentage. Your interest rate does not reflect any fees or other charges you may pay for the loan. The APR goes a step further. It takes the interest rate on a student loan and adds in any upfront costs, such as an origination fee. The APR is also a percentage, but it measures the total cost of borrowing money on an annual basis.

By law, private student loan issuers must show customers the APR. The law requires this to facilitate a clear understanding of the actual interest rates and fees applicable to their agreements. In the U.S., the calculation and disclosure of APR is governed by the Truth in Lending Act.

Tip: While U-fi and many private student loan lenders do not charge an origination fee, some lenders do. Be sure to carefully read the loan terms before applying for and accepting a loan.

Why is it important to know the APR if I know the student loan interest rate?

As mentioned above, the APR gives a more complete picture of the cost of borrowing. For student loans and student loan refinancing, if the lender doesn’t charge an origination fee and you immediately begin making full principal and interest payments, the interest rate and the APR will likely be the same. However, if the lender charges an origination fee or you defer making principal and/or interest payments while you are in school, your APR will not likely be the same as your interest rate. By looking at both the interest rate and the APR, you will be able to get a clearer picture of your expected monthly payment and the total cost of the loan.

Does the interest rate and APR tell the complete story?

Interest rates and the APRs are useful tools to help understand the cost of borrowing and to compare different loans. But, they don’t always tell the complete story. For instance, federal Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans come with an origination fee, but the fee is deducted from the loan disbursements, so the origination fee is not included in the APR. Thus, if you took out a $10,000 federal Direct PLUS Loan with its 4.272% origination fee, you would only receive $9,572.80, but you would have to pay back the entire $10,000, plus any accrued interest on the loan.

Also, the stated APR may or may not include any borrower benefits associated with the loan, such as an interest rate reduction for auto debit payments or cash back rewards for good grades. Some federal student loans also come with loan forgiveness programs, so be sure to take all these into account when comparing loan offers.

Tip: The interest rate and the APR for a variable rate student loan reflects the interest rate and costs at the time you take out the loan. If interest rates change, the APR changes as well.

Knowing the difference between APR and interest rate helps you make an informed decision when taking out student loans.

You’ve probably heard the term cosigner. But, do you know what it means, how it can help you, or what qualities make a good one? If you find your federal funds aren’t enough to cover the cost of college, consider applying for private student loans. Applying with a cosigner can help you qualify for a private student loan. It can be difficult for student borrowers to meet the criteria and income requirements by themselves. Learn if a cosigner is right for you.

What is a cosigner?

A cosigner is a person who signs for a loan with a borrower. If the borrower misses payments or defaults on the loan, the cosigner takes responsibility for payments and the remaining balance. Since both the borrower and cosigner have equal obligations, missed payments and default affect both their credit.

How does having a cosigner help me?

Including a cosigner on a loan decreases the risk for the lender. That’s because the lender has another person obligated to repay the loan if the borrower defaults. Cosigners allow the lender to take on less risk. Less risk increases the borrower’s chances of getting approved for the loan. It may also lead to better loan terms. These include lower interest rate or shorter repayment length. Both could save considerable money over the life of the loan.

Even if you qualify for a loan without a cosigner, the loan terms are generally not as favorable. However, wanting a cosigner to improve your loan terms and needing one for approval are two different circumstances. You may need a cosigner if you have no income or too little income, have no established credit or poor credit, your debt-to-income ratio is too high, or if you are either unemployed or recently changed jobs and don’t have an employment history. If any of these scenarios apply to you, you should consider applying with a cosigner to qualify for the loan. Applying with a cosigner gives you time to fix any of the above issues. It can also mean you can take out future loans on your own.

Who should I ask to cosign?

The most difficult part of choosing a cosigner is finding someone who is willing to sign on a loan with you and also has strong credit. Typically borrowers will turn to spouses, parents, or close friends to cosign. No matter who you choose, be sure your cosigner is financially stable. Other traits to look for in a credit-worthy cosigner include having a good job with a solid employment history and/or owning a home or other assets.

Asking someone to cosign on a loan with you is a big commitment, so make sure you are prepared. Tell your potential cosigner the reason you are asking them to cosign, your intentions to pay the loan back, and communicate to them that you can afford the payments. You can also ask your lender if there is a cosigner release option. Some loans will allow you to request that your cosigner be removed from the loan after a period of time if you meet certain requirements. Being prepared to answer any questions your potential cosigner has will show that you are serious about taking on the financial responsibilities of a loan.

Cosigning is a big commitment for both the borrower and the cosigner and should not be taken lightly. Make sure both you and your cosigner understand all terms and are clear on the responsibilities of the loan prior to signing.