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ABCs of Private Student Loans
A college degree is a valuable asset
Your child did his or her part—getting accepted into college. Now comes your part—figuring out how to pay for it. A private student loan can help fill in the gaps left by other forms of financing, such as scholarships and grants.
You and your child may be reluctant to take on a student loan to help pay for college. However, consider the return on investment. A person with a college degree can be expected to have much higher earnings after graduation than a person without a degree. In fact, over a working lifetime, the typical worker (full time, year round) with a 4-year college degree earns over 60 percent more than a worker with just a high school diploma. The difference is even greater for those with advanced degrees.
The ABCs of private student loans
Before you apply for a student loan, you'd probably like to know what's involved. The following information will help you understand CompleteEd™ private student loans. You can learn more by visiting the other sections of our web site. Click on the glossary link in the Paying for College section for definitions of unfamiliar terms.
Borrower
The student, not the co-signer, will be the borrower on the loan. However, since your student probably doesn't have much of a credit history yet, a co-signer will be required. Having a creditworthy co-signer makes it more likely that the loan will be approved. It also may result in a lower annual percentage rate* (APR) on the loan because our risk is reduced, due to your credit history
Amount of the loan
Your child can borrow from $2,500 to $25,000 per academic year less personal contributions, private and Federal aid, and other loans received. The lifetime loan limit is $125,000. The amount of the loan is capped by the cost of attendance.
Credit scores
Most private student loans, including those from CompleteEd, depend on the credit history of the borrower and/or co-signer. Those with good credit scores are likely to get better interest rates on their loans. To learn more, visit www.annualcreditreport.com.
Interest rate information
The initial APR on the loan is low for qualified borrowers. The variable APR for CompleteEd loans is PRIME + a margin of 0% up to 6.25% depending on the creditworthiness of the student/co-signer.
There is an instant .25% APR savings on the life of the loan for credit union members or anyone planning to join a credit union. There is an additional .25% APR savings † during repayment for those who sign up for automatic payments. Interest begins accruing the day the loan funds are paid out.
Co-signers
A co-signer is required. If you are thinking of becoming the co-signer, consider these benefits: Being a co-signer on your child’s loan will help your son or daughter build a credit history and improve the chances of getting the loan, which students might not be able to do on their own. Furthermore, having a co-signer with a good credit history may help the borrower secure a lower APR on the loan.
The co-signer is responsible for repaying the debt if the borrower cannot. However, the co-signer can be released from the loan after 48 months of consecutive on-time payments.
Eligible schools
Your child must be enrolled in an eligible school. That means a U.S. school with either a 4- or 5-year undergraduate program. The school may or may not have a graduate program. The student must attend school at least half time and be working toward a degree. A list of eligible schools is available as part of the online application process.
Repayment
No repayments are required until 6 months after your child graduates. The repayment period is up to 20 years, with a minimum monthly payment of $50. There are no penalties for prepayment. However, if the monthly payment is not paid within 15 days of the due date, a late fee will be charged.
Payment difficulties
If you are having trouble making the loan payments, talk to the financial aid office at school or the lender/servicer of the loan before you miss any payments. It may be possible to be granted a deferment or forbearance, which can buy you more time.
Deferment of repayment
Arrangements can be made to defer principal and interest payment for up to 60 months while your child is continuously enrolled in an approved school at least half time. Interest will continue to accrue and will be added to the loan amount once repayment begins.
Tax deductions
As a general rule, interest paid on Federal and private student loans is tax deductible for borrowers who meet certain income criteria. Your tax advisor can provide specifics. To learn more, visit http://www.kiplinger.com/features/archives/2007/01/educationtaxopedia.html.
Comparing private loans
When comparing private loans from several lenders, it helps to write down how various elements of each loan differ. Once you have everything laid out in black and white, it should be easier to make a decision about a lender.
Look at the total cost of the loan, the minimum monthly payment required, borrower rewards (for example, you may receive a lower interest rate if you sign up for automatic payments), grace periods, deferment rules, origination fees, and prepayment penalties. The last important factor is APR. However, you won’t find out your rate until you apply. It’s worth keeping in mind that each time you apply for a student loan, a credit check is run. And repeat credit checks can hurt your credit score.
Difference between certified and uncertified loans
CompleteEd offers certified loans. That means the school certifies student status, identity, and eligibility. Loan money is paid directly to the school. The loan covers up to 100% of tuition, fees, and books as well as room and board. Any money left over after paying for the cost of attendance is provided to the student. A certified loan usually has a lower variable APR than an uncertified loan.
Uncertified private student loans are awarded based on credit history and a school’s lending limits. The loan is paid directly to the student and may be used to cover a number of college-related expenses. The borrower can ask for more than he or she actually needs for school. The danger is that students with a “spend now, worry later” philosophy may be tempted to use some of the money for things such as spring break trips. Since the APR is high on uncertified loans, that would be an irresponsible use of borrowed funds.
Talk to an expert
If you still have questions, call our Student Loan Specialists at 1-800-798-1660, Monday through Friday 7 a.m. to 5 p.m. CST. They have extensive experience in college funding.
CompleteEd private student loans are originated through our partner University National Bank. After disbursement, CMG Student Lending Services, LLC, a member of the CUNA Mutual Group, assumes full ownership of all loans.
*CompleteEd private student loan APRs are variable based on the Prime rate. †The discount applies while the automatic payment arrangement is in effect. After 3 consecutive "non-sufficient funds," the arrangement will end and you will lose the discount. 1. CollegeBoard. Financial benefits to the individual. Available at: http://www.collegeboard.com/prod_downloads/about/news_info/cbsenior/yr2007/08-0416-education-pays-event-factsheet-financial-benefit.pdf.
