Tips for Smart Borrowing
When you have determined that borrowing money is the only option for financing your education, and you have determined the minimal amount of money that you need to get by, you are encouraged to follow the tips below to borrow wisely.
Use Federal Loan Options First
You are encouraged to use federal loan options before seeking private sources. Federal loans offer benefits, particularly once a student goes into repayment, that private lenders typically do not. For example, federal loans include forbearance options (temporary suspension of payments). Please note that federal loans have strict annual limits. The Financial Aid Office will offer you the maximum annual amount of subsidized and/or unsubsidized loan that you are qualified for.
For more information regarding federal financial aid, please visit http://studentaid.ed.gov/.
Choose a Reputable Lender
There are many student loan lenders available to you. By federal regulation, Ferris State University will process loans from any lender that you choose. However, loan products and customer services offered by lenders vary greatly. Ferris State University provides a webpage for students and their families to use as a starting point to search for alternative loan lenders.
Use a Credit-Worthy Cosigner
Very few students will qualify for private alternative loans without the assistance of a credit-worthy lender. Parents are typically the obvious choice as co-signers on student loans. In some situations, however, grandparents or other relatives may be a better choice (co-signers are not limited to relatives). As a general rule, the better the credit history of the cosigner, the better the interest rate on the loan. Look for loans that offer "co-signer release" options. With a co-signer release option, the co-signer may apply for release from obligation on the loan once the student has gone into repayment and made the requisite number of consecutive on-time payments.
Protect YOUR Credit History
Students are often targeted by credit card companies. Avoid credit cards if at all possible. If you do open a credit card, consider a "secured" credit card in which you deposit an amount equal to the balance on the card, or consult with your parents to choose a card in which they are cosigners. With a cosigner, you will likely get a better interest rate. Make your credit card payments on time! In addition to adding exorbitant late fees to your credit card balance, making your payments late or defaulting on your credit card or other obligations such as cell phone payments, utility bills, etc., can destroy your credit rating. If your credit history is bad, you may be denied for private loans regardless of the credit history of your cosigner.
Look at FIXED Interest Rate Options
Interest rates are currently as low as they have been in history. When looking at student loans, however, you need to consider that the average student will pay back their student loans over an extended period of time. Standard repayment terms are for ten years, but may be stretched out for a period of up to twenty years. No one can predict the future of interest rates over the next 10-20 years. For that reason, you are urged to look at loans that offer fixed interest rates. Fixed interest rates will remain the same until the loan is repaid. Variable interest rates will vary based on various economic factors. Most variable interest rate student loans do not have a ceiling or capped rate. You may commit to a slightly higher interest rate with a fixed rate, but you will take the uncertainty out of your student loan payments.
Pay While You Are In School
If at all possible, make payments on your student loans while you are in school. Educational loans do not have any pre-payment penalties - you may make payments at any time. If you, or your parents, can afford to pay at least the interest on your loans while you are in school, you are encouraged to do so. If you can afford to make additional lump sum payments to reduce the principal - even better! With some private loans you will secure lower interest rates by agreeing to make payments while you are in school. However, be careful not to over-extend yourself when you initiate the loan. Agreeing to make payments and then not being able to make them will destroy your credit. You would be better off deferring the payments and then electing to make payments as you can afford to do so.