After calculating how much money is needed to cover the cost of college and miscellaneous expenses, decide if you and your parents need to arrange for a student loan.
Review the various types of student loans; if you need to borrow money from a private lending institution, research your college’s website or contact your college financial aid officer to see if your college has a “preferred lender list.”
A list of the most popular lenders of Private Education / Alternative Education loans is provided on the loan summary table.
BEWARE: Private Education/Alternative Education loans usually cost more than federal education loans. In addition, federal education loans offer better forgiveness and repayment options; it is recommended that you maximize your federal loans before resorting to Private Education / Alternative Education loans.
How Much to Borrow
Borrow only the amount of money you need. Over the next four years you should borrow from only one lender so when it comes time for repayment, there will only be one monthly payment to one lender.
For most loans, repayment begins six months after you graduate or leave college. To calculate monthly payments for student loans, use a student loan calculator.
- Enter the loan balance (Loan Amount) you expect to have when you graduate.
- Select an estimated average Interest Rate for your loans.
- Enter the Number of Months you will take for loan repayment. Students usually choose a 10-year (120 month) repayment schedule.
Master Promissory Note (MPN)
If you accept a student loan, you must sign a Master Promissory Note (also called a MPN) from your college or the lender you have selected. The MPN is a promise you will repay your loans under the terms and conditions set forth. Your MPN will be used for all your student loans, freshman through senior years, if you use the same lender. You can sign your MPN electronically or on paper.
The MPN is a legally binding contract in which you promise to repay loan(s). Be sure to carefully read the conditions detailed in your MPN; it will include the amount of money your are borrowing, interest rate, loan fees, length of the repayment period, and conditions in which late fees and other costs may be assessed. If you have questions about the terms and conditions of your MPN, contact your lender.
Loan Entrance Counseling
You must complete an online loan entrance counseling session if you accept a student loan. Federal regulation requires counseling for all first-time borrowers before loans are disbursed to colleges on behalf of students.
Instructions from you college will tell you how to complete the online loan counseling session. The session will show you how to manage your loans during and after college.
What to Consider When Selecting a Lender
In almost all cases, students and parents should borrow the maximum amount possible from Federal government loans (Perkins, Stafford, and PLUS loans) before borrowing from private lenders. Federal education loans are less expensive, offer better forgiveness and repayment options.
If a Private Education / Alternative Loan is needed, ask your college if they have a “preferred lender list.” Using a lender from the preferred lender list will make processing your loan easier. However, you have the right to choose other lenders not on your college’s list.
It is recommended to research loan benefits and incentives before selecting a lender. Go to each lender’s website and determine the cost of fees, repayment options, and other incentives. These include:
- The fees for loan origination and loan guarantee.
- Possible interest rate discounts.
- Loan consolidation options and the ability to fix interest rates during repayment.
- Reducing interest rates for timely repayment and for automatic payments/withdrawals from your bank account.
- Lender’s reputation for customer service.
- Other factors.