What do I need to know to get my student on the right path for taking out student
loans?
Here are some tips to help guide your student down the right
path:
Help your student understand the importance of borrowing responsibly. College is an investment but
if loans are needed, they must be repaid – with interest.
Complete the Free Application for Federal Student Aid (FAFSA)
Even if you don’t think your family is eligible for financial aid, submit the form. The FAFSA
helps determine whether students are eligible not only for grants, scholarships and work-study
programs but also for federal loans.
Take advantage of federal loans first. Compared to private student loans they usually have lower
interest rates, more generous repayment terms and do not require credit history or a co-signer.
If there is a funding gap after all other options (i.e., savings, federal loans, a part-time job
or work-study and other gifts or available money) have been used, consider a private student loan.
Note: Supporting children through school is a
wonderful gift, but if that gift may put your retirement at risk, talk with a financial professional
first to see what options you may have.
What are some differences between federal and private student loans?
Federal student loans are available through the U.S. Department of Education
and provide fixed interest rates and several repayment options. They also provide benefits for
borrowers who may have problems making payments after graduation, such as income-based repayment—but
there are limits on the amount students can borrow.
Private student loans, on the other hand,
are education loans offered by credit unions, banks and other lenders. They offer fixed or variable
interest rates and are credit-based, meaning students (and their co-signers, if required) have to meet
credit and other requirements set by each lender. Private loans are typically used for expenses not
covered by federal student loans.
Should I borrow from a bank or a credit union for student loans?
It all comes down to what is most important to you. Before choosing a lender,
take time to identify your values. Look at rates, terms and conditions, but also other aspects that
are important to you. For example:
Among your top contenders, is there one that performs better in other areas that you might value
in the future?
Do any negative aspects change your mind about what matters to you?
Who can i talk to if i have a question about my current loan?
Your student loan servicer – the company that handles your student loan
payments – can help with questions about making payments, paying off your loan, returning to school
and just about any other question related to your student loan.
Eligibility & Loan Limits
Am I eligible for a private student loan?
You are eligible for a private student loan if you meet your lender's
membership eligibility and credit requirements, are enrolled at least half time and are working
towards a degree at an eligible college or university graduate or undergraduate program. Generally,
students must be age 18 or older and a U.S. citizen or permanent resident, but some states have
different age requirements.
How is the loan amount determined for a private student loan?
Your school and lender determine the amount of money you are eligible to
borrow. Your eligibility is limited to your school's cost of attendance minus other financial aid
you will receive for the loan period (generally a semester or school year). The minimum and maximum
loan amounts vary by lender.
What is the total amount I can borrow?
You are eligible to borrow up to your school’s cost of attendance minus any
financial aid you receive. However, loan limits vary by lender and a lender may limit its lending to
an amount less than your eligibility.
Application & Funding
What is the credit union student loan application process?
Typically, the student loan application process with a credit union
follows these steps:
Student--and co-signer, if required—completes an online application.
If you are not already a member, the credit union will ask you to complete a membership
application.
Credit union reviews the application(s), and may ask you for more information.
Credit union decides whether to approve your loan application.
If approved, your credit union sends you an approval letter. You must accept the terms of your
loan within 30 days.
School validates amount of money being requested.
Credit Union will send a final letter describing the loan amount and the date the funds will be
send to the school. You have at least three business days to cancel the loan, if you choose to do
so.
Credit union sends funds to your school. You may confirm receipt and the handling of any refund
with your school.
How will i receive the funds?
Your lender sends funds to your school. You may confirm receipt and the
handling of any refund with your school. In most cases, your school will split your funding for the
academic year so that half is disbursed at the start of your fall semester and half is disbursed at
the start of your spring semester. This saves you money, as interest on your loan does not start
accruing until the date funds are disbursed.
Can i apply if i don't have a Social Security Number?
A student borrower, as well as a co-signer, must have a Social Security number
or, for a permanent resident alien, an alien registration number.
Cosigner
Will I need a cosigner?
Your lender may require a co-signer before making a loan to you. Most student
borrowers need a co-signer, simply because they don't make enough money to qualify for a loan by
themselves. Typically, lenders require a gross annual income of at least $25,000 before you can sign
for a loan by yourself.
Who should I ask to be a cosigner?
You can choose any qualified individual to be your co-signer, and it
doesn't need to be a relative. Typically, a co-signer must be age 18 or older and a U.S. citizen
or permanent resident. Among available co-signers, it is typically best to choose the person with the
highest credit score and at least two years of credit history.
What does it mean to be a cosigner?
When you co-sign a loan, you are making a legal commitment to pay back the loan
if the student does not pay. You and the student borrower share equal responsibility to repay the
loan. This means that lenders are able to collect payments directly from you and may take steps to
collect from you before trying to collect from the student. Co-signers are also responsible for paying
late fees and collections costs if payments are late or the loan defaults. Lenders may also report
negative credit information about the co-signer to consumer reporting agencies if the loan is not paid
according to its terms.
Who is responsible for paying the loan?
The student borrower and their cosigner are equally responsible to repay the
loan. If you already have a student loan and are having trouble making payments, call your lender’s
loan servicer to talk about other options.
Can a cosigner be released from the responsibility to pay the loan?
Some lenders offer ways a cosigner can be released from paying the loan,
meaning he or she is no longer responsible to repay it. First, after making for example; 24
consecutive monthly payments on time, the student can request to have the cosigner released. Releases
are not automatic. The student also has to meet certain credit requirements, which will be the same as
or similar to those applicable to students applying for loans by themselves. Second, if the student
borrower dies, some lenders offer that the cosigner can be released and won't be responsible for
repayment.
How does my cosigner apply?
Students and their cosigners can apply online. Typically, the student borrower
will apply first. Before you apply, you and your cosigner should have the required documents
ready.
Is my cosigner required to be a credit union member?
This varies by lender.
Does my cosigner need a Social Security Number?
Yes. A cosigner, as well as the student, must have a Social Security number or,
for a permanent resident, an alien registration number.