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Sep-19th-2011

Ways to Finance College: Bank Student Loans

Financing an education is a challenge, but bank loans can help. These are loans made directly by lending institutions, usually to supplement money from other aid sources. The details vary from state to state and lender to lender, but the following aspects should be considered before any student signs on the dotted line.

Choosing a Lender

The Bank

There are a number of factors to consider in choosing the bank. For starters, not all banks grant loans to students of all institutions. Any financial institution that will not make loans for school the borrower wishes to attend is not a prospect. The next factor is stability. Almost as important is the lender’s reputation. A check with consumer agencies will reveal any reports of unfair practices such as discrimination or deception about bank student loans. College financial aid offices have valuable information about this. Also consider that may be substantially easier to qualify for loans at one bank than at another.

The Offer

Even if the lender is up to par, one has to consider the particular bank loans on offer. The interest rate is a huge factor. This rate is usually fixed and will be based on the lender’s judgment of the student’s ability to repay bank loans. The primary factor will be the individual student’s credit history. Shopping around is the only way a student can find the best rate.

Rates are not the whole story, though. Students should consider the quality of a lender’s customer service. It should be easy to get answers to simple questions about bank loans and to deal with any problems that might arise. Another thing to look at is the terms of deferment and forbearance, ranging from the date the student will have to make the first payment to the bank’s flexibility if the student’s circumstances change. One should also consider special programs that the lender may offer with their bank student loans. If these are suitable to the student’s situation and result in a lower overall cost, that fact should be taken into account when comparing loans.

Getting the Loan

The Student’s Qualifications

To get loans, a person has to be enrolled in school, of course, but that is not the only requirement. The school itself has to be acceptable to the lender. No bank will lend a student money for a worthless degree that will not help pay off. Usually the bank will want the school to be accredited by a particular authority, and there may be other requirements. In addition, students with loans are expected to make progress towards completion of an academic program. This normally means taking at least enough classes to be considered a half time student. For borrowers seeking loans on their own there are also age requirements, which vary from state to state.

Cosigners

Traditional students, those who have just finished high school, usually have almost no credit history, and they may fall below the minimum age at which it is legal to take out any loan in their state. Even if such a student is old enough to borrow, the interest rate they are offered for loans is likely to be very high, and some students may have difficulty getting approved at all. To qualify and get a better rate, traditional students may wish to use a cosigner for bank loans. This is a person, usually a parent, with a good credit history who agrees to pay off if the student defaults. This is a substantial commitment, and students should think carefully before asking someone to become a cosigner. The cosigner status does not necessarily last for the life of bank loans. Some institutions allow graduates who have made a certain number of payments to apply to release the cosigner from their obligation.

Paying Back Bank Loans

Responsibility

All loans, federal as well as private, have to be repaid. Bank loans do not go away if the student drops out of school The loan still has to be paid, even if the former student cannot find a job. A former student’s income or lack thereof has no effect on the responsibility to pay off loans. The loan will still be there, piling up interest and affecting the borrower’s credit history, until the last dollar is paid. For this reason, bank student loans should be for the minimum amount possible.

Deferment

A deferment is an agreement by the lender to let the student put off making payments on bank loans. It is fairly standard to defer the first payment until a given number of months after the student leaves school to allow time for the establishment of an income that will support repayment. In addition, bank loans may be deferred during military service. One can even apply for a deferment due to unemployment or unexpected expenses like medical bills. It is important to realize interest on bank loans does not stop accruing during the period in which no payment is made.

Forbearance

A forbearance is a continuation of a suspension of payments on bank loans after a deferment ends. While it may be a good thing in certain cases, some lenders have been accused of pushing forbearance just to run up the cost, since interest, of course, continues to accrue. It may be necessary for a former student to negotiate a suspension of payments in some rare cases, but the cost means that this should be done as rarely as possible.

Before taking out loans, a student should consult their families and any financial professionals with whom the family does business, and talk to the financial aid office at the school in question. After getting advice and evaluating all the deals on offer, a student will be well placed to choose the best bank loans for any particular situation.

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