Comparing Student Loans

There are hundreds of lenders willing to offer student loans to college bound young adults and navigating these options can be a daunting task. While it may be tempting to accept any money that is thrown your way, it is never a good idea to accept more than you actually need. Remember, student loans are intended for paying for a college education and should not be used to splurge on a pair of new shoes or a summer at a beach-house with your best friend.

The first place you should look for a loan is via the federal government. These tend to be the safest option and you have the greatest likelihood of being accepted. Further, the interest rates on these loans will remain stable and not rise or “balloon” over time. Several of these federal loans are also available to everyone, regardless of income status. This is particularly true of the unsubsidized federal loan programs. There are also federal loan programs available for parents of students as well. These are called Parent Loan for Undergraduate Students or PLUS loans. These will have a higher interest rate than the federal loan that the student takes out, but is still less than most private lender options.

Once you have exhausted your federal loan options, for both yourself and your parents, the next alternative to examine is a private loan. These will be riskier, more difficult to obtain and will also have a higher interest rate. Private loans are available from a variety of sources and not all of these are reliable. If you question the validity of a particular lender, you can check with the Financial Aid department of your college and ask if the lender in question is one that they have worked with in the past.

When comparing private loans, you should compare interest rates first. More precisely, the student should check the APR or Annual Percentage Rate that will be charged on the loan. Some lenders will advertise an especially low rate on their marketing materials and once you complete the application, an entirely new (and higher) APR will appear on the paperwork. Also be sure to check the fine print of the loan to ensure that the rate will not rise over time.

You should also steer clear of any loan that requests a high origination or application fee. This is something of a red flag that will indicate a lender that is less than reputable. Most of the more popular and trustworthy financial institutions will charge no application fee whatsoever.

Finally, be sure that all details of the loan are outlined prior to signing the final document. When comparing lenders, if there is one on your list that is not upfront with regards to all of their terms you should probably cross them off of your list. At the same time, be sure that the cancellation policy is clear prior to signing on for any loan.

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