Private student loan rates now start at just over 1%. Tempting, but here are 4 things to know before signing up

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Besides choosing a major or Greek, you will need to figure out how to pay for four years of high school education. Since college tuition fees – from tuition and room and board fees to expensive textbooks – can easily exceed $ 30,000 a year, students and their parents often find it difficult to afford college on their own. This is where student loans come in handy.

As part of a financial aid package, students are usually offered loans of two types: federal and private. Federal loans are funded by the US government; private loans are offered by financial institutions such as SoFi as well as Sally Mae and may include banks, credit unions, and sometimes other stage agencies. “I always recommend that students take federal loans first before applying for private student loans,” says Mark Kantrowitz, student loan expert and founder PrivateStudentsLoans.guru… (For its part, federal loans have better repayment terms and different benefits than private loans.) But when federal loans aren’t enough and you need a private loan, here are the key things to be aware of.

one. Private student loan rates are very low right now, but you still need to take a closer look
It is very important to take a closer look at your private loan in order to get the best rate you can. At the time of this writing, the bottom cap flat rates were less than 4% of Credible, CollegeAve, as well as Serious

Unlike federal loans, private loans can offer a variable rate. For example, Credible as well as CollegeAve offer variable rates starting at 1.04% at the time of this writing. This may sound tempting as the rates are now very low and could be below the fixed rates, Kantrowitz said. But they can start to increase over the life of the loan, which can increase the cost of the loan over time, and thus your monthly payment can increase.

“The only time I would recommend a borrower to get a variable rate right now is if they are able to repay the loan and are fully committed to doing so before interest rates rise too much,” he said.
(Check out the lowest rates you can get for private student loans – from Credible, CollegeAve, as well as Serious – here).

2. Look for ways to save even more
Something as simple as transferring your private loan payments to auto payments can save you money over time. Most lenders will offer a slight cut in interest rate if you sign up for automatic payment or automatic debit where your monthly payments are automatically transferred from your bank account to the lender every month. Lenders love Sally Mae, Navient and CollegeAve only a few of them offer a 0.25% reduction in the interest rate for automatic payments.

“This reduces the likelihood that you will be late with your payment. So they really like it, and so you can get, depending on the lender, a quarter to half a percent cut in interest rates, ”he says. “This is as long as you pay for automatic payment and it can save you a little money.”

Another way to save money on both federal and private student loans is to deduct interest on the student loan. You can deduct up to $ 2,500 in interest paid on all federal and most private student loans during the previous year. And, depending on your tax category, this can save you several hundred dollars on your tax return.

3. Cost-based commission factor
Fees can sneak up on you and get expensive. Although many private loans include a commission in their interest rates, late fees (for both federal and private loans) can add up. “When it comes to private loans, commissions are essentially a form of upfront interest that you pay no matter what,” Kantrowitz said. “But whatever one may say, federal loans are often cheaper for the borrower than private loans.”
(Check out the lowest rates you can get for private student loans – from Credible, CollegeAve, as well as Serious – here).

four. These loans can (negatively) impact your parents’ financial future, so pay on time.
When your mom or dad co-signs your loan, they’re on the hook. This means that if you are late with a payment or do not pay off the loan, you will ruin not only your loan, but also their loan. This can affect their ability to obtain other forms of debt, such as credit cards, car loans, and mortgages, because lenders will treat this jointly signed loan as a parent loan.

More than 90% of undergraduate students and 75% of graduate students need an applicant for a private student loan. “When it comes to a private loan, the student must be very responsible in managing it,” said Kantrowitz. “They need to take them seriously because they control not only their financial future, but also the future of their parents.”
(Check out the lowest rates you can get for private student loans – from Credible, CollegeAve, as well as Serious – here).

Also see: 9 mistakes too many Americans make when trying to get a mortgage



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