Helping kids pay for college can be a wonderful gift, yet parents and families should always conduct due diligence before they take out any type of loan.
For example, families should know exactly how much in loans they’re taking out, the interest rate they’ll be asked to pay, and the monthly payment they’ll need to plan for.
Parent borrowers in particular should also understand they’ll be legally responsible for repaying student loan balances they co-sign for — even if their student doesn’t keep up with their end of the bargain.
With all this in mind, there are several important tips and tricks that can help parents and their students get a better deal on private student loans, wind up with a more reasonable monthly payment, or pay off loan balances faster.
If you’re a parent who is considering co-signing private student loans, read on to learn the important steps you can take early in the process.
1. Shopping Around Can Pay Off
First off, it’s important to know that you don’t have to go with the first student loan company you find. In fact, you can save money and enjoy better customer service if you shop around and compare lenders based on these factors.
Start by comparing the interest rates lenders are able to offer, and look for lenders that let you pre-qualify or “check your rate” without a hard inquiry on your credit report. From there, take the time to read the user reviews of multiple lenders, and check for accreditation with the Better Business Bureau (BBB).
If you want to lock in a low interest rate, now is a good time to shop for private student loans with fixed rates as well.
After all, the Federal Reserve recently increased interest rates by a quarter of a percentage point, and they have already announced six more interest rate hikes in the next year.
2. Compare Multiple Repayment Plans
Also make sure you consider private student loans with flexible repayment plans you can choose from. After all, you may want to pay off private student loans as quickly as possible in some situations, yet others need to pay longer in order to secure a lower monthly payment.
As an example, College Ave Student Loans paves the way for most borrowers to pay their loans off over five to 15 years. This broad range of options can help you and your family find a monthly payment that fits your budget, whether that’s to pay it quickly as possibly or to have some flexibility with a lower monthly payment.
3. Early Payments Can Make a Big Difference
As you shop around for loan options, you should also remember that you may be able to make interest-only payments while your child is in college, but you can also pay up to the full principal and interest and payment starting from month one. Having this flexibility gives you options when it comes to paying for college, yet it’s important to note that making early payments will help you keep loan costs at a minimum.
By choosing a shorter repayment term and making full principal and interest payments while your kid is in college, you can put student debt behind you faster and save money along the way.
4. Take Advantage of Discounts
Speaking of saving money, also make sure to check for any discounts you may be eligible for. The most common discount is the auto-pay discount, which can be applied to your account when you agree to let your lender automatically deduct your bank account for your payment amount.
With College Ave for example, the 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. By signing up for auto-pay, you also ensure there will be no missed or late payments.
5. Look for Ways to Borrow Less
Also make sure you and your college student are doing everything you can to minimize borrowing costs. Ways to pay less for higher education can include things like living at home instead of on-campus, attending a state school instead of a private university, and even attending community college.
Remember that borrowing less for college can help you save in more than one way as well.
Not only can you take steps to minimize your initial loan amounts, but borrowing less leads to lower interest charges over the long run.
6. Student Loan Calculators Are a Valuable Tool
Finally, you should have access to tools that can help you visualize the full impact of borrowing money for college. Believe it or not, but something as simple as a student loan calculator can help you gain a full understanding of how much you’re borrowing, what your monthly payment will be, and the total interest charges that can accrue over the life of a loan.
As an example, let’s say you plan to borrow $20,000 to help your college student pay for their graduate degree. If you qualified for a fixed interest rate of 4% and chose to repay your loan over ten years, a student loan calculator can help you see that the monthly payment would be $206.54, and that the total loan costs would work out to $24,784.81.
You can even use a student loan calculator to see the impact of making full principal and interest payments during college versus making interest-only payments or flat payments during school.
Private student loans can help you finance one of the most important investments you’ll ever make — an investment in your child’s education. However, borrowing should never be taken lightly, and it’s important to know you’ll have to pay back the entire loan amount plus interest charges that accrue.
The steps you take now can help you borrow less, get out of debt faster, or both. With that in mind, you should learn all you can about your borrowing options and shop around among lenders, like College Ave, to find the right fit.