I’m sure you’ve heard horror stories about private student loans: overwhelming interest rates, crummy customer service, bait and switch marketing techniques, and beyond. It can be scary out there! That’s why we offer alternative loan counseling to first-time borrowers of private loans. And don’t worry—Wallis Wallet has some helpful advice!
How to Avoid a Haunting
If you look for these kinds of options from your lender, you may be able to avoid a decision that will haunt you in the future.
- Before applying for a private loan, review the loans available from the federal government. If you are already receiving subsidized or unsubsidized loans, a PLUS loan may help to offset some of the cost of your education. These are available to parents or graduate students, and the maximum amount is the cost of attendance minus financial aid received. The Department of Education is the lender, so these loans are typically a reliable option.
- Look for loans that have deferment and forbearance options. Deferment, if eligible, provides a period of time during which repayment of the principal and interest is temporarily delayed. Forbearance, if granted by the lender, allows you to stop making payments or reduce your monthly payments for up to 12 months.
- Consider consolidation. It may be helpful to you to simplify your repayment by centralizing your loans to one bill. However, doing so may increase the length of your repayment period, meaning you’ll make more payments and pay more interest over time.
- Think through your repayment options. While there are standard and graduated repayment plans, there are also income-based and income-sensitive options from the federal government. When researching private lenders, be sure to investigate the repayment options and which one will be most realistic for you after graduation.
- Get interested in the interest rate. Fixed rates will remain the same over the life of the loan, while variable rates will fluctuate over the life of the loan based on changes in the market rates of interest. This will be a big part of your loan repayment and money management in the future, so carefully weigh the advantages and disadvantages of each.
The Makings of a Horror Story
Here are a few frightening things that may happen if you don’t exercise caution when you choose to borrow a private loan.
- Identity theft: It happens. Be cautious of who you are providing personal identifying information to when you’re on the Internet!
- If your parent or relative cosigns on a private loan and you are not able to make payments, their wages may be garnished.
- Variable interest rates can get you—some fluctuate as high as 25%, and will eat up your payments. You may be stuck paying off interest and never touching the principal.
- Default. It’s a scary word. If you default on your loans, you’ll be liable for costs associated with collecting your loan, your wages may be garnished, your tax refunds may be intercepted, it will hurt your credit score, and you will not be able to receive any more federal financial aid. Sometimes when you go into default, the full amount of the loan becomes due. Yikes.
Borrow smart. Do your research, and be fully aware of how much you are borrowing, what the interest is going to be, and how you will pay it back. Keep meticulous records to avoid disputes or miscommunication with lenders. With diligence, you can avoid your own student loan horror story.