We all know college is expensive. That’s no secret. My school’s tuition, specifically, is $44,420 a year.

Thus, every year I have attended, I have taken out loans, whether that be federal or private. Debt can be scary.

I hope this article can help reduce some of those fears, give you the knowledge and power to make an informed decision on how to pay for school, and help you understand if taking out a private student loan is the right decision for you.

Someone wise once told me, “Don’t be afraid of spending money, be afraid of wasting it.” This advice to me means not being afraid of taking out loans but being afraid of feeling like you wasted the money that will take some time to pay back. 

Here is a link to our Private Student Loan Checklist and search engine to find student loan providers for your school instantly! 

*Disclaimer: I want to mention that international students trying to get a private loan from a private student loan provider could be more difficult and based more on your cosigner’s credit and income. Therefore, international students who don’t have a U.S. credit history or a cosigner with a U.S. credit history may find it more difficult to get approved.* 

Here is a good article for more information.

What is financial literacy and why it is important?

Financial literacy is the knowledge and application of various financial skills. Making informed decisions with your finances can help put you in a better place mentally and ensure your relationship with money is a healthy one.

According to the Financial Literacy and Education Commission, there are five key components of financial literacy: earn, spend, save and invest, borrow, and protect. This is important because those who do not have this knowledge are literally stuck.

Other ways to pay for school 

As an out-of-state student, I have explored many options on how to pay for school.  

Before you start taking out loans, I would suggest looking for other ways to pay for school. There are scholarships and grants you can apply for that do not require you to them back at all.

I also highly suggest filling out the Free Application for Federal Student Aid. That is the best way to qualify and get that money. There is virtually a scholarship for anything and everything, like grades, standardized test scores, locations, specific ethnicity, activities, or financial need.

A good rule of thumb is to try and apply for federal student loans because of the low interest rate, protections, and flexible repayment options.

Process

Information you will need 

• School information (including school name, major, grade, and school term for which you need the loan)
• Social Security numbers (yourself and cosigners) 
• Credit scores (yourself and cosigners) 
• Telephone numbers
• Current addresses (both for your home and your school)
• Gross income information (how much you or your cosigner made- tax documents)
• Residence information (including whether you own or rent, and the monthly housing payment)
• Requested loan amount

Definitions 

• Master Promissory Note: a legal document in which you promise to repay your loan(s) and any accrued interest and fees.
• Cosigner: a person – such as a parent, close family member or friend – who pledges to pay back the loan if you do not. This can be a benefit both to you and your lender.
• APR: Annual percentage rate (APR) refers to the yearly interest generated by a sum that’s charged to borrowers or paid to investors – basically the percentage rate you have to pay back that accrues each year.
• Repayment: The period of time when you pay the loan back.
• Prepayment: This means you can make extra payments to reduce the balance of the loan or even pay off the entire balance early, without having to pay an extra fee before you go into repayment.
• Loan Origination Fee: An origination fee is typically 0.5% to 1% of the loan amount and is charged by a lender as compensation for processing a loan application. Origination fees are sometimes negotiable, but reducing them or avoiding them usually means paying a higher interest rate over the life of the loan.
• Statute of Limitation: When collecting a debt, a statute of limitations refers to how long a creditor has to sue for repayment.

Checklist of things to look at

• Variable or Fixed APR? 
• Loan Origination Fee?
• Interest Rate Reductions for automatic payments? 
• Customer Service Reviews? 
• Prepayment Penalties?
• Time to repay? 
• Charges or fees for changing due dates, or repayment plans? 
• Fund Dispersement? 

Loan Providers 

Below are some specific loan providers to start your search: 

• College Ave 
• Sallie Mae 
• Ascent Student Loans
• SoFi 
• Earnest
• Nelnet 
• Credible 

Apply: 

Fill out an application with the information you have gathered. Research is the hardest and most important part. 

Wait for approval:

The student loan provider will then communicate with the school. Sometimes you can get pre-approved which will tell you if you can get a loan without a cosigner.

Getting approved can take anywhere from a few days to weeks to months. The process all depends on how prepared you are and how fast the company is to review your application. 

Sign the papers: 

This is when you would sign a Master Promissory Note. There may be a couple of other forms depending on the provider they will ask you to sign. Be sure to always read the fine print. 

Dispersement: 

At this point, YOU should communicate with the Student Accounts office and let them know or confirm your loan is coming to them at a certain time to avoid late fees or anything like that.

Tips on building your credit 

Building your credit will increase your chances of being able to take out a loan independently or you and your cosigner of being approved.

Your credit is based on: 

• Payment history (35%)
• Credit usage (30%)
• Age of credit accounts (15%)
• Credit mix (10%)
• New credit inquiries (10%)

Ways to improve your credit score:

• Open a student credit card
• Avoid opening too many accounts at once
• Become an authorized user on a credit card that already has a good or established credit score
• Get a co-signer on loans or credit cards
• Pay off balances on time and in full 
• Check credit score – free ways to check!
• Ask for higher credit limits

Here’s a TikTok with advice on building your credit. 

Paying back private student loans

When it comes to paying back private student loans, there are not as many protections or options. You can request to postpone payments.

Keep in mind, that interest will still be accruing. Some lenders will charge for this. A big con to private student loans is no income-driven repayment option.

Although you can default on private student loans where there IS a statute of limitation, they are more strict, and not paying them back on time can hurt your credit score immensely. Below are 4 types of repayment. Not every lender offers every option. 

4 types of repayment: 

1. Immediate repayment: You make full monthly payments while still in school.
2. Interest-only repayment: You will pay only the interest on your loan while you’re still in school.
3. Partial interest repayment: you will make a fixed monthly payment while still in school that only covers part of the interest you owe.
4. Full deferment: you pay nothing while you’re enrolled in school. During this time, though, your loan balance grows.

Pros vs cons of borrowing private student loans

Pros

You can default on private student loans, but not federal student loans. There IS a statute of limitation. If you get into a situation with a cosigner or without your cosigner where you cannot pay your loans back, you may need to either come up with a plan to refinance or consolidate your loans. Although, if you pass away, the loan may not be discharged. 

The funds are ready to go for the upcoming year and since the loan company and school communicate, the money is disbursed in time or in a timely manner for the tuition due date. 

 You can be rewarded for a high credit score with a lower interest rate. In comparison with federal loans, the interest rate is the same for everyone. 

Cons 

Some advice I have gotten about loans is you are borrowing from your future self. If you already have a major or career in mind, research how much you are going to be really making or what people in your dream field or position are making.

The time it will take to pay off the loan could be years. Therefore, gaining a lot of interest or having a variable interest rate, which is normally more than inflation, is expensive. You will end up paying back more than you borrowed and that’s why it is ideal to pay off your loans as quickly as possible. 

Another con is finding a willing and credible cosigner. Acquiring a loan all by yourself can be difficult if you don’t have a good credit score.