If you have to borrow for college, the best college loans are the ones available through the federal government, which provide the same student loan rates and terms for everyone.If you are interested in pursuing private college loans, you need to proceed carefully. Here are seven things you need to know when shopping for private loans.
1. Turn to credit unions.
Credit unions, which are newer players in the private student loan world, almost always provide better interest rates. Ironically most people stick with the well-known lenders even though their rates are typically higher. You can look for college loans at credit unions through cuStudentLoans.
2. Check for schools that have their own credit unions.
If your school is affiliated with a credit union, check its rates. Here are institutions that have a credit union:
University of Chicago
Mount Holyoke College
University of Massachusetts
University of Wyoming
University of Kentucky
California State University system
Eastern Iowa Community Colleges
3. Apply for multiple loans.
At AllTuition, a private college loan comparison site, parents research many loans, but rarely apply for more than one. Unfortunately, borrowers won’t know what rate they qualify for unless they apply. It’s well worth the effort.
“A family taking out a $12,000 private loan is paying $5,000 more in interest because the parents aren’t taking 30 minutes to shop and they only complete one application,” says Sue Kim, Alltuition’s CEO.
4. Don’t assume you’ll get the lowest rate.
The teaser rate on private loans can look much more attractive than federal college loans. For instance, the interest rate for the federal PLUS Loan for Parents is 7.9 per cent vs. some advertised rates of 3.5 per cent or 4 per cent.
Mark Kantrowitz, the publisher of FinAid, however, estimates that fewer than 5 per cent of borrowers capture the best rate. The difference between the lowest rate and the highest rate at an individual lender can be huge.