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Smart Borrowing


As college costs continue to rise faster than financial aid or family savings can keep pace, more and more families are considering federal Federal Loan - A federal loan is any educational loan guaranteed by the federal government. Federal loans are processed in accordance with the United States Department of Education regulations and often have different lending criteria compared to credit-based loans. and private loans Private Loan - Loans that are not sponsored by the federal government. Private loans, funded by private companies, are not subject to the same restrictions as federal loans. to help pay for higher education. For those who choose this option, borrowing the right amount in the right way can have a big impact on what their loans will ultimately cost. Below are answers to common questions borrowers have, along with links to more resources.

How much should I plan on borrowing?

The simplest answer to this question is, as little as possible. The actual amount will vary greatly from person to person, from year to year, and even from major to major. One way to think about it is a "pyramid of funding." At the base of the pyramid should be all the free sources of funding you may be eligible for, like scholarships and grants. The next level should be savings that you've put aside for college. Then state and
federal loans Federal Loan - A federal loan is any educational loan guaranteed by the federal government. Federal loans are processed in accordance with the United States Department of Education regulations and often have different lending criteria compared to credit-based loans., then private loans Private Loan - Loans that are not sponsored by the federal government. Private loans, funded by private companies, are not subject to the same restrictions as federal loans.. In terms of costs, of course there's tuition, room and board. But don't forget things like travel expenses to get to and from school, lab fees, books, a laptop, software (if required by the school or program) and other education-related costs. See also: Calculators & Tools, Scholarship Search Engines.

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When should families start thinking about how to pay for college?

Procrastination is common in college funding preparation.  It's never too early to think about higher education financing. Numerous savings and pre-payment plans, some of which have tax advantages, are available and families can enroll children in some programs starting at birth. Many experts advise that family conversations about paying for college begin when parents and children begin seriously discussing life goals. Regardless of where your family is on the planning spectrum, it's just as important to remember that it's never too late, either. Grants, scholarships, financial aid,
federal loansFederal Loan - A federal loan is any educational loan guaranteed by the federal government. Federal loans are processed in accordance with the United States Department of Education regulations and often have different lending criteria compared to credit-based loans. and private loans Private Loan - Loans that are not sponsored by the federal government. Private loans, funded by private companies, are not subject to the same restrictions as federal loans. are all options that can be explored throughout college and graduate school as needs arise.

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What factors can impact how much I pay for my loan?

There are many different things that determine interest rates and origination fees Origination Fees - The fee, charged by the lender, for services provided in connection with the origination and funding of the loan.. Some of these are a function of the economy at large; interest rates fluctuate in response to the markets. Other costs and fees are set by lenders, which is why it's always a good idea to shop around for the terms and conditions that are best for you. And of course there are attributes of the borrowers, like credit scores Credit Score - Your credit score is a number based on the information in your credit file that shows how likely you are to pay a loan back on time - the higher your score, the less risk you represent., how much they intend to borrow and whether they have a cosigner Cosigner - An additional applicant added to a loan to meet the creditworthiness guidelines, usually a parent but not always. A cosigner will have the same legal responsibility on the loan as the primary borrower.. The time to think about ways to keep loan costs as low as possible is long before you need the money, so that you can evaluate all your options. See also Smart Borrowing Worksheet.

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Why should my family consider a private student loan before home equity, retirement savings, credit cards, or other sources of funding college?

Every family must decide which financing decisions best suit their individual needs. Reasons that people consider private student loans include cost and peace of mind. Student loans tend be less expensive than other types of borrowing, particularly credit cards which can have finance charges as high as 20%. Peace of mind comes for many people in the knowledge that important assets for which there is no financial aid – such as their retirement savings – are not at risk. But before embarking on any course of action, families should consider all options, evaluate their financial situation, and consider seeking professional guidance. See also Borrowing Smart.

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When is the right time to apply for a student loan if we decide that is the best choice for our family?

Currently, state and federal student loans have specific application windows for any given school year. Visit the FAFSA site Free Application for Federal Student Aid - The standard form students must complete to apply for federal and state need-based assistance/aid programs. This is the first step in the financial aid process. Use it to apply for federal student financial aid such as a Pel grant, student loans and college work-study. In addition, most states and schools use FAFSA information to award their financial aid. Visit the FAFSA website ( http://www.fafsa.ed.gov/) for more information. for specific state and federal loan Federal Loan - A federal loan is any educational loan guaranteed by the federal government. Federal loans are processed in accordance with the United States Department of Education regulations and often have different lending criteria compared to credit-based loans. application deadline information. Applications for private loans can be made any time; the time between when you submit your application and when you actually receive your disbursement Disbursement - disbursement Disbursement - The sending of funds to the borrower or the school on the borrower's behalf. varies by lender.

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What should my family be shopping for when considering a private student loan?

There are a variety of private student loans Private Loan - Loans that are not sponsored by the federal government. Private loans, funded by private companies, are not subject to the same restrictions as federal loans. available to families who feel this is the best option after exhausting funds from grants, scholarships, and state and federal loans. Lenders develop different loan programs to meet different borrowers' needs. Specific things to consider when shopping for loans include:

Before you sign anything, you should also make sure that your loan Loan - An extension of money to a borrower under predetermined conditions of repayment. documents are clearly written and that you understand all the terms and conditions of your loan.

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