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The FNA Afterschool Special

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• 3 minutes

While no one likes to feel indebted—financially or otherwise—sometimes it’s a necessary thing. Right up there with the house and car is education, and these days it’s become a staple, whether easily affordable or not. Obviously then, loans are also an everyday essential for many students. In fact, “Of students graduating college in 2013, 69% had student loans.” It’s clear: this is the norm. But just like you’d shop around for the best option when financing a home or vehicle, you have the right to be choosy when it comes to settling on a lender for education expenses.

Your Future is Theirs To Lose

You’ve done your part: FAFSA filled out, scholarships and grants received, federal loans accepted. But this year, there’s a gap between what you have and what you’ll need to cover the cost, and the payment is coming due. Since the amount owed is based on previous-year income, it could even be more than this year can afford. In these and other situations, when a lump sum of savings isn’t to be found, a private loan is your next course of action.

Right about now is when parents might reason that since their own retirement seems far off, borrowing from their future selves to fund a child’s education is their only responsible option. And while we totally understand your sentiments, this thought couldn’t be further from the truth. So whether you opt to cosign or assume the loan yourself, by leaving retirement accounts in tact you’ll be setting a financial example worth imitating. And trust us: years down the line, your kids will thank you for taking care of business.

And Do Your Homework!

When you stroll into your college or university’s financial aid office with loan questions, they’ll likely share a list of recommended lenders, and this could be just the help you need. Preferred lenders are generally chosen for their positive record—ease of communication, flexibility, customer service, readiness to resolve issues, etc. And while borrowers can always look outside of these lists for funding, they are a good place to start, and can help to set a standard for things besides interest rates and term length. In the end though, this is your choice—no need to feel pressured to go with a lender you’re not sold on, whether they’re one of the big guys, or suggested by a school administrator.

A great way to get choosing is to first find out what’s most important to you in a lender. Then, create a chart that compares and contrasts the top 3 you’ve found. You’ll be more readily able to take an objective look at available options, and make a decision that best fits your circumstance and goals.

A few more things to think about:

• Terms of repayment vary—How long overall? Is the rate lowered for a shorter term? Can I begin to repay before graduating? Get to asking.
• A cosigner might be necessary, and will probably secure a better rate; they will also be ‘on the hook’ if a student can’t repay
• Plotting out a repayment plan before you commit helps to bring goals into focus and to paint a realistic picture—it can also infuse more value into your education.
• A few key components in choosing a lender are often “cost, flexibility and customer service,” but also take a look at extra fees and stipulations about attending school a certain amount of hours or making certain grades.
• With private lenders, credit history generally determines eligibility and necessitates a cosigner, or parents may opt to take the loan out in their name only
• For younger borrowers, this loan could be the start of a lifelong partnership with the lender, so start this thing off on the right foot
• If several students in the family will seek higher education in the next few years, parents or grandparents may want to consider a 529 plan; even if funds are immediately removed, tax breaks could be available

Saving and paying for an education is a balancing act of sorts, and as with any financial decision, variables can stack up; there’s a lot involved. So whether you’ve been down this road before, or it’s new territory, with a can-do attitude and some skilled advice, deciding on the right lender is well within reach. As with any new challenge, your friendly FNA family is here to steady your foot and guide you on your way.

• education costs
• financial planning
• loans
• retirement planning