College student researching student loans

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You've done the math—you know the total cost of college and you've maxed out all of your sources of funding (federal loans, scholarships, grants, work study, etc.). After looking at the types of student loans, if you're considering a private student loan to help cover the total cost of college, you’ll want to research and plan the answers to these two big questions: How much should you borrow? What type of loan will work best for you and your family? Here are five smart steps to take when choosing a student loan.

1. Confirm whether your total cost of college is covered. (You may have already done the work here.)

Your financial aid offer letter will tell you how much money is available for you and which of the different types of aid it will be (federal loans, scholarships, grants or work study). Pay attention to whether the amount you’re being offered covers the full cost of attendance or only the cost of tuition and your room and board.
 
Next, make a list of the sources of funding outside of your financial aid award letter. These might include monetary gifts or support from relatives, income from a part-time job, and grants or scholarships you received that are not included in your award letter. Tally up your financial assistance from all sources and subtract it from the total cost of attendance. If you still have a gap in funding, you may want to consider a private student loan. Keep this amount in mind as you research private student loans (more on that below), but know that your lender works directly with the school to confirm the amount so you don’t borrow too much.

2. Evaluate fixed rates vs. variable rates—and which one makes sense for you. 

When selecting a private student loan, you’ll need to determine if you need a fixed or variable rate. A fixed rate loan means that your interest rate will remain the same throughout the life of the loan, while a variable rate can fluctuate over time. Fixed rate loans offer the predictability that the rate won’t change with swings in the market. (Note: all Federal loans are offered at a fixed rate). While variable rates may be slightly lower than fixed rates, they pose a risk that if interest rates go up, your monthly payment increases. Conversely for a variable rate loan, if rates go down, your monthly payment may decrease.  The type of rate you choose—fixed or variable—affects how much you will have to pay over the duration of the loan.  You can see sample repayment examples for fixed and variable student loan rates on the Citizens site. You can also look into options to pay off your loans early.

TIP: An interest rate is a percentage of the amount you borrow that must be paid back in addition to the amount you borrow—in other words, an interest rate is the cost to borrow that money. An APR or “annual percentage rate” includes the interest rate plus other fees that the lender may charge (e.g., origination fees). An APR provides a more accurate idea of the true cost of the loan. If a lender doesn’t charge any fees, then the APR and interest rate should be the same.

3. Decide whether you're going to have a cosigner. 

If you add a cosigner to your student loan (usually a parent or close family member), you’re more likely to get approved for a larger loan and lower rate. At Citizens, 95% of undergrad student loan borrowers have a cosigner. Keep in mind that any cosigners will be liable for the student loan debt, so be sure to discuss whether this option is right for you.

4. Figure out if you want to make payments on your private student loans while you're in school.

There are pros and cons to the various ways of paying your loan, whether that’s making payments immediately, making interest-only payments while in school, or deferring payments until after graduation. For example, Citizens offers Student Credit Builder, which refers to loans that allow you or your cosigner to make immediate principal and interest or interest-only payments on your loan throughout school. Choosing Student Credit Builder loans may give you a lower rate, reduce the amount you owe when you graduate, and help you to build good credit. Alternatively, it may be challenging for some borrowers to afford a monthly payment while in school so deferring payments could be a better option. Explore loans that offer different repayment options and think about which work best for you and your future goals.

5. Shop around for the best loan product. 

Once ready to find a loan, make a list to compile your loan research and your preferences—how much funding you need, whether you will be applying with a cosigner, and which rate and repayment options you prefer. Then you can compare the offerings of different private student loans and find the one that best fits your needs.

TIP: Make sure you find out what fees are included with each student loan. For example, an origination fee is a percentage of your loan amount, which some lenders charge to process and disburse (or “pay out”) your loan. Some lenders also may charge an application fee. (Citizens does not charge origination or application fees.)

Look at what additional benefits each lender offers. For example, Citizens offers an automatic payment discount and a loyalty discount if the borrower (or their cosigner, if applicable) already has a qualifying Citizens account in existence when they submit a completed application. Longer loan terms can be tempting, as your monthly payment may be lower, but keep in mind that longer term loans generally charge higher interest rates, so you will pay out more money over the life of the loan.
 
Loan calculators will give you a rough idea of your costs but try to get a personalized rate quote if you can. It is generally a quick process, and there is no commitment to the lender. Taking a few minutes to get a rate quote will give you a more accurate picture of the rates you qualify for with that lender.

Once you choose your lender, you’re ready to submit your loan application. Plan your timeline accordingly: depending on the lender, your loan approval may take a few days or a few weeks, and can then take anywhere from another two to ten weeks to disburse funds. Take care to complete all documents correctly; you can find information on your school’s financial aid website to ensure that your lender has the correct information to certify your loan and disburse funds to the school on time.
 
Ready to start shopping for your private student loan? Get a personalized rate quote with Citizens in about two minutes.

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