Choosing a Lender for a Private Educational Loan
The Undergraduate Financial Aid Office recommends that students first apply for financial aid by filing the Free Application for Federal Student Aid (FAFSA). Filing the FAFSA will automatically allow students to be considered for Federal Direct and Perkins Loans. You will want to utilize all of your federal loan options before pursuing a private educational loan.
There are three general categories of questions to ask when researching student loan products offered by a private lender:
1. Loan Fees: Most private educational loans are subject to various types of fees.
You may want to ask lenders...
- What, if any, fees are associated with my loan and how will this affect the amount of my loan proceeds?
2. Customer Service: Your relationship with your private lender will span several years. Both during school and after graduation, you will undoubtedly have questions concerning your private educational loan funds or payments that are best answered by your lender. It is therefore important that you work with an organization committed to providing good customer service.
You may want to ask lenders...
- When are customer service representatives available to answer questions about my loans?
- How quickly will my loan funds arrive on campus?
- Do you send loan funds electronically (electronic funds transfer or EFT) or by paper check?
- Do you ever sell your loans to a secondary market?
- If the lender does sell their loans, ask them...
- Why do you sell your loans?
- If my loan is sold, how and when would I be notified?
- Will the new holder of my loan honor the benefits you have promised me?
3. Repayment: Repaying your private educational loan is an important obligation. It is critical that you understand what will happen to your loans upon graduation or if you cease to be enrolled at least half-time (defined as six credits per semester).
Lenders offer a variety of incentives and benefits to borrowers to encourage timely and complete repayment. These benefits are typically tied to "on-time payments" and/or "automatic (auto-debit) payments".
You may want to ask lenders...
- What repayment benefits do you offer and what is required of me to ensure I receive and continue to receive any benefits?
- If I lose my repayment benefit(s), are they recoverable?
- If so, how are they recovered and when would my benefit(s) be reinstated?
- What percentage of your current borrowers are receiving repayment benefits?
- How many days beyond the payment due date can my payment be received and still be considered "on-time?"
- If I elect to have my loan payments automatically debited and there are insufficient funds in my account on the payment due date, what happens?
