As you prepare for college, you will likely have to decide how to finance tuition. Your first step should be to explore scholarships, grants and federal loans, but after that, you may still have some gaps to fill. A private college loan is often the solution. Learn the steps and requirements involved in applying for private college loans.
1. Complete the FAFSA
You will need to fill out the Free Application for Federal Student Aid (FAFSA) to find out how much aid you are eligible to receive via scholarships or grants. The FAFSA will also tell you how much you or your family is expected to pay. Your contribution can be comprised of cash out-of-pocket, federal loans, private college loans, or a combination of these. To complete the FAFSA, you will need a federal student aid pin, your Social Security number and W-2′s or other income records.
2. Learn your credit score
Your credit score impacts your ability to obtain a private college loan as well as the student loan rate you could receive. To qualify for a loan, you will most likely need an above average credit score, proof of your present income and proof of residence in the United States. Otherwise, you may need your parents or another reliable adult as a co-signer on the loan. You would still be listed as the primary borrower, which would help improve your credit score. Keep in mind your co-signer will have to pay your bills if you default, and defaulting will negatively affect both your credit scores. Therefore, it’s imperative that you keep up with payments.
3. Review the repayment terms of the loans you are considering
You should know the repayment structure of your loan. Will you need to start making interest-only payments while in school and then amortized payments after graduating? If so, what is the student loan rate? Will you be able to defer payments until you graduate? Do your payments have a three to six-month grace period following graduation, giving you time to find a job? Use a student loan calculator to determine how much your monthly payment will be, given available payment structures and terms. Note: you are still responsible for repaying your loan if you dropout or withdraw from college.
4. Complete private college loan applications
If you decide you need private college loans, you’ll have to enroll at least part-time in a degree-granting institution to qualify. Talk to your school to see if they have a preferred lender list to help you choose a reputable lending institution. Keep in mind borrowing limits may change based on where you receive your loan or what year you are in school when you apply. When you apply for a private college loan, make sure you know:
- How much you need to borrow
- The overall cost of your education
- Financial aid you are already receiving
- The desired borrowing period
- Your college’s education code (Use the School Code Search on the FAFSA website)
- Your expected graduation date
Don’t hesitate to ask questions regarding private college loans
Speak to a representative at a reputable bank or lending institution for more information on private college loans and student loan rates. Be sure you have already completed your FAFSA and have documentation regarding your school’s financial aid offerings so they may better understand your situation. This will help them find the right financing options for your education.
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In step number 3 I’d add try and pay some of the interest each month (usually not very much). That way it won’t compound upon itself when the loan is ready to be repaid.