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Finding the Best Loan for Higher Education Expenses

When it comes to options to finance undergraduate or graduate school expenses, a credit union can be an asset to help you uncover the options to find what works best for your family. After savings, grants, scholarships, and federal student loans have been exhausted, a loan may be needed to cover the balance of higher education and living expenses.

Understanding Private Loan Options

Private loans are offered by banks and credit unions – not the government. The government offers financial aid and federal loans. Private loans are credit-based, which means the lender looks at your history of borrowing and paying it back on time. They want to know how creditworthy, or responsible, you are with credit before approving your loan application.

Ron Moreau, Chief Development Officer at Campus Federal, suggests, “When applying for a loan, you’ll need to decide how much money to borrow and how you’d like to pay the money back. It’s also helpful to understand what’s required during the application process and what happens after your loan is approved. The decisions you make now will affect your future.”

Decide How Much to Borrow

Not all private loans are the same. There are different types of interest rates, repayment options, and more. Be sure to read all disclosures provided to you when you apply for a loan. You can apply for the funds you need to cover all your school-certified expenses for the entire school year, including tuition, books, fees, supplies, housing, meals and in some cases, even a laptop.

Create a personalized plan to pay for college that tracks scholarships, grants and other funds. You should estimate your expenses for the entire school year. To help determine your expenses, check your financial aid award letter, which contains your school’s cost of attendance to see your estimate of certain expenses.

Choose a Type of Interest and Repayment Option

The interest rate you’re given depends on your credit score. Depending on your lender, it may also be impacted by some of the loan-related choices you make, like the type of interest rate you choose and how you decide to pay the loan back. Interest is the cost you’re charged for borrowing money. When you pay back a loan, you pay it back with interest, so you end up paying back more than you borrowed.

Fixed interest rates stay the same for the life of the loan. You will have the benefit of a predictable monthly payment with an interest rate that doesn’t change over time, but your total loan cost may be higher. With a variable interest rate loan, your interest rate may be less than a fixed interest rate, resulting in a lower total loan cost, but your interest rate can rise or fall as the market index changes, so your loan payments may vary over time.

Home Equity Loan Options

Home equity is the portion of your home that you have paid off. You build equity by making your mortgage payments for many years or you can gain equity if the value of your home increases. Either way, your home equity is an asset that can be used to pay for major expenses, including higher education. Because your home is essentially the collateral for the loan, it’s generally easier to qualify for this type of credit.

“Tapping into home equity may be a good way to bridge the gap in paying for college if you find that federal student loans and other financial aid are not enough,” Moreau says. “Understanding the benefits and risks will help you make the right decision for your family.”

There are two ways to use your home equity to pay for expenses related to education. A Home Equity Loan is a lump sum you borrow with a fixed interest rate, while a Home Equity Line of Credit (HELOC) provides you the flexibility to borrow funds as needed  and has a variable interest rate.

Private Student Loans

Campus Federal can also help walk you through applying for more traditional Student Loans, like Sallie Mae. Sallie Mae offers loans for undergraduate and graduate school expenses with competitive interest rates, no origination and multiple repayment options. Although they do not charge a penalty or fee for prepayment of the loan, any prepayment will be applied as provided in the promissory note: first to unpaid fees and costs, then to unpaid interest, and then to current principal.

Sallie Mae offers loans to meet specific needs for undergraduate or graduate school expenses:

  • Smart Option Student Loan for Undergraduate Students – Bachelor’s and Associate’s degrees or a certificate at a degree granting school
  • Parent Loan – for parents or other credit-worthy individuals who want to take responsibility for financing their student’s undergraduate, graduate or certificate education at a degree-granting school
  • Graduate School Loan – Masters of Business Administration, Medical School, Dental School, Health Professions, Law School, Bar Exam Study, Master’s or Doctoral Degrees, Medical or Dental Residency and Relocation

The Loan Application Process

To start any loan application you will need to provide your address; Social Security number; school information, including enrollment status, degree and course of study; academic period of enrollment and year in school; requested loan amount; financial aid and scholarship information you expect to receive; employment information; financial information (bank accounts, monthly mortgage or rent); and personal contacts (other than a cosigner).

Once you’ve done your research, determined the best course of action for your family, submitted the loan application, and your loan is approved, your lender will keep you informed of the disbursement process, which means the funds are sent to your school.

Whether you’re an undergraduate, graduate, business, dental, medical, health professional student or a parent of a student, a credit union can be a tremendous asset to help you find the best loan option to meet your specific needs. According to Moreau, “The credit union philosophy of ‘people helping people,” allows Campus Federal to offer more than financial services. We are here to help our members on their financial journey, which includes financial education.” Visit campusfederal.org/membership to learn more.