Ask the Important Questions
Here are 10 questions you should ask if you are taking out student loans. They are especially important if you or your family will be taking out private/alternative education loans.
- Does your college provide a "Preferred Lenders" or "Suggested Lenders" list? If so, they are required to provide an explanation of why they picked those lenders. Have you reviewed this explanation?
- What borrower benefits or rate discounts do the lenders offer? Are any of those benefits contingent on your making a certain number of consecutive, on-time payments? What are the chances that you will qualify?
- Does the lender typically sell its loans to another lender/servicer? If so, your loan could end up with another lender/servicer, rather than the one you borrowed from.
- Will your borrower benefits or interest rate discounts continue if your loan is sold?
- What is the interest rate of the loan? Is it fixed or variable? Will it remain the same for the life of the loan, and if the loan is sold?
- Will you actually get the advertised "as-low-as" interest rate?
- When will repayment begin? If repayment starts after you leave school, will interest be added on to the principal balance while you are going to school? What circumstances will result in the capitalization of interest?
- What is the total amount that you will have to repay over the life of the loan, and what will the monthly payments be?
- How long is the total repayment period, and is there any penalty for early repayment of all or part of the principal?
- What are the penalties for missing monthly payments? When is a payment considered late?
Your college financial aid professional, lender representative or lender Web site should be able to help you get the answers to these questions. Don't sign for a loan until you are sure.