Congratulations! You studied hard in high school, aced your entrance exams and padded your resume with all sorts of extracurriculars. Now you’re headed for college. But here comes the difficult part: paying for it. Here are seven things you can do now to make sure you get the loans you need for your college education:
- Get educated, so you can get educated. The college loan system is complicated, so make sure you understand all your options. You’ll find a handy little summary of financial aid in our article Student Loans 101
- Max out your federal loans. Federal student loans, unlike private loans, are available regardless of your credit history, and they generally come with a lower interest rate. Federal loans generally have low fixed interest rates, so it’s important to squeeze as much as possible out of the federal loan program first.
- Figure out FAFSA. A FAFSA is the Free Application for Federal Student Aid that the government uses to determine your eligibility for federal financial aid, including scholarships, grants, work-study and loans. Keep in mind that many federal funds are distributed on a first come first serve basis so it’s a good idea to file early. The earliest you can file the FAFSA is January 1 for the upcoming school year.
- Find a creditworthy co-signer. If you need private loans to pay for college expenses, you should know that lenders may require higher credit scores than in years past. If you haven’t already built a strong credit history, look for someone (a parent, relative, or family friend) with a good credit score who will be your co-signer. Make sure they know they will be on the hook for your debt if you can’t make your payments.
- Shop around. Private student loans can be expensive due to high interest rates and fees. That’s why it’s more important than ever to explore your federal student loan options first, and then shop around for the best private student loan deal possible.
- Ask about borrower incentives Some lenders offer interest rate reductions or principal refunds if you make on-time payments for a certain amount of time. This can amount to significant cost savings over the life of the loan. Lenders may also offer interest rate reductions or other incentives if you have your loan payment automatically withdrawn from your bank account. Make sure to look for the incentives that will give you the biggest benefit when choosing a student loan.
- Look homeward. Parents financing their child’s education can also consider borrowing against the equity in their home. The interest could be lower and, possibly, fully tax deductible. However, remember that with any type of home equity loan, your home is collateral for the loan. This may put your home at risk so consider all your financial options carefully before making a decision.