How to Go Shopping for Student Loans
A college education is more than a good idea. In today's competitive marketplace, a college degree is practically a prerequisite to a successful career. In fact, the percentage of people with an undergraduate degree has never been higher. People understand that a college education is a necessity. They just don't always know how they will pay for it.
Financial aid, scholarships, saving, and working during school can all help when it comes to paying for college. Even with excellent financial aid, many families still find themselves in need of extra funds to bridge the gap for college. This is completely normal. In many ways, student loans have become a fact of life. You can make a difference by understanding how to borrow with the right type of student loan. This is because not all student loans are created equal.
Students and parents need to carefully consider their interest rates and repayment terms. You also should consider who's providing the student loan and if they have your best interests at heart. But what do these things mean, and how do you find the best private student loan for you? Here's a breakdown of what students and parents need to know when shopping for student loans.
What Do I Want in a Private Student Loan?
When you start researching your options for the best private student loans, the results can become overwhelming. Thankfully, there are some key factors that should help you narrow your results. Ask yourself what you're using the loan for, and how much money you really need for school. Sit down and do the math of what it actually costs to attend college.
The cost of college is a lot more than tuition and fees. That's why it's important to know the hidden costs of a college education. Room and board aren't something you're going to see on your tuition bill, and food costs add up fast. And don't forget about the costs of books and supplies. It's estimated that the average college student spends close to $1,200 a year on books and supplies. That's not to mention personal costs like laundry, personal items, and entertainment. When you add it all up, it can be a sizable amount on top of tuition and fees.
Compare Interest Rates on Private Student Loans
One of the first, and most important, factors to consider is the interest rate you'll pay on your loan. This is the percentage of the loan that will be charged to the borrower. Your interest rate directly affects the total amount you're paying back for your loan.
Here's an example for you. Let's say you took out a private student loan of $10,000 at an interest rate of 8 percent. We'll also say that the loan repayment period is 10 years and it takes you the full ten years to pay it back. By the time you're done paying, you will have spent $14,559. That means your loan will ultimately cost you an extra $4,559. This is almost half of the amount you borrowed in the first place! Do you see why interest rates are so important now?
The average fixed rate for a private student loan was a whopping 9.66 percent in 2017. And they aren't getting any lower. By shopping around for the best interest rates, parents and students can save themselves a lot of money in the long run.
By comparison, for loans from applications made on or after May 1, 2022, the interest rates on an NC Student Assist Loan are fixed at 6.70 percent when in repayment using auto-draft. Rates are even lower for NC Parent Assist Loans, where they can be as low as 6.00 percent when in repayment using auto-draft. These rates are so competitive that sometimes they're even better than federal student loan rates!
Know Who is Servicing Your Private Student Loan
Another important part of picking the right student loan for you is knowing who is providing your loan. Many private student loans are serviced by public for-profit corporations. These companies have an obligation to their shareholders, not their borrowers. That means these companies are going to do whatever they can to make money. It's no wonder why their interest rates can rise to more than 12 percent.
Thankfully, this isn't the case with all private student loans. For example, the NC Assist Loan is offered by College Foundation, Inc. (CFI). CFI is a nonprofit corporation that has been serving North Carolina families for 64 years. The goal of CFI is to make the dream of higher education a reality for everyone. That's why interest rates remain so competitive. It's all so CFI can provide the best value possible for borrowers.
Choose the Best Private Loan for You
Even after you've done all your research, it's important that you use all your free money first before taking out a student loan. That means filling out the FAFSA and applying for all the scholarships and grants you can. Once you've done that, determine how much you need, and shop around for student loans. Now that you know what to look for, you can be a smart shopper and find a private student loan that makes sense for you.