Earlier this week, I talked with Tim Ranzetta, a national expert on college loans and the founder of Student Lending Analytics. Today, I wanted to share some of his advice about private school loans that can save you money!
Here are some things that you absolutely need to know about private school loans:
1. Students should max out their federal student loans before anybody ever thinks about borrowing through a private college loan. Federal student loans are superior in every way and they got even better thanks to the new federal student loan legislation that was wrapped up with the landmark healthcare bill. (See my links below for past posts on federal student loans.)
2. Only college kids are eligible for federal student loans, but parents can make the payments.
3. Many families are confused about whether they possess federal or private loans. One reason for this confusion is because in the past many families had to turn to outside private lenders for their federal loans. These private lenders then also encouraged these families to sign up for their brand of private loans.
This arrangement not only caused confusion, but it also discouraged families for shopping for the best private loans. Thanks to inertia, families found that it was easier just to go with the same lender, such as Sallie Mae, Bank of America or Wells Fargo, that was handling their federal student loan. Mercifully this can’t happen anymore because federal students loans will only be offered through the direct federal college loan program beginning on July 1.
4. Before looking at private loans, check on the availability of a home equity line of credit or a federal PLUS Loan. Private loans should be a last resort! With a home equity line or a PLUS loan, however, the parent is on the hook. With a private loan, the student can be responsible so that’s why some parents gravitate to private school loans.
What Ranzetta, however, told me is that tougher underwriting standards almost always require that an adult cosign for the private loan for a student.
5. When a parent, with good credit, cosigns a private student loan this will put the borrower into a better tier of pricing.
Tomorrow: Private Loan Prices
Stay tuned. Tomorrow I will share with you highlights of Ranzetta’s new survey on private loan interest rates.