Guide to Borrowing for College

• Can I use a Personal Loan to Pay Educational Expenses?

  You can use a personal loan to pay educational expenses. As a general rule, you should borrow through a federal student loan before turning to a private student loan or to a personal loan.

  Personal Loans are generic consumer loans that can be used for almost any purpose. They typically have a shorter repayment term, with payments beginning immediately, than a federal or private student loan. Personal Loans are much less flexible than federal student loans, and the loan APRs are generally higher than on a federal or private student loan.

• Which is better – Federal of Private student loans?

  It almost always makes sense to borrow through the Federal Student Loan program first before turning to Private Student Loans. The reason is that Federal Student Loans have competitive interest rates, but especially because Federal Student Loans have extremely flexible deferment and repayment provisions. Private Student Loans might be a good option if a student needs to borrow more than is available through the Federal Student Loan program.

   

• How much should I borrow?

  As little as you possibly can. Students should always – always – exhaust every resource for paying college costs before turning to student loans. But if, as is often the case, you need to borrow for college, keep track of what your total loan principal and the future monthly payment will be. This can be confusing because many students borrow through multiple loan programs over multiple years. However, it is very important to end up with a total borrowed amount that is manageable, especially during the first several years out of college, when a graduate’s income will be low. Some experts suggest keeping total student loan payments within 10-12% of gross monthly income. Of course, it’s impossible to fully predict what the future graduate’s income will be, but it is worth consulting with the financial aid office and career services office at your school to come up with an estimate.

• Do I need a co-signer for Private Student Loans?

  Almost definitely, yes. Private Student Loans are made based on credit and income analysis of the borrower(s). If a student borrower has no credit history and no sizable income – which is usually the case – the student will not be approved for the loan. Overall, Private Student Loans have roughly a 95% co-signer rate.