Monday, January 28, 2013

How Do I Know What Lender to Use?

This is a common question in the Financial Aid Office. When a student has exhausted all resources that don't typically require repayment (scholarships, grants, etc.), then the loan questions come out. And one of the most common makes sense. After all, there are how many lenders out there?

The answer to this question depends on what type of loan you are referring to. If you are able to take out a Federal loan, specifically a Direct Loan, then you don't have to choose a lender. What happens is you take out your loan from the Federal government. Then your loan is sent to and serviced by a government-approved loan servicer. Sallie Mae, Great Lakes, and Nelnet are a few of these. So, in a sense, your lender is chosen for you with these loans. The only bad part about the servicers is the possibility that your loan could change to a different servicer. It doesn't happen often anymore, but it's always possible. There are some borrowers who ended up with more than one servicer in the last couple years, and the servicers are trying to get all the borrowers' loans together. What better way than trade a couple loans?

If you are looking at a private loan, then your question on which lender to use becomes a valid one. Most schools that use private loans (which should only be considered after you've exhausted the Federal loan options) will have a preferred lending list. These lenders are the ones that the school uses the most, so your FA administrator should know a little something about each one. The best advice anyone can give when considering these types of loans is to ask questions. Ask about length of repayment, interest rates, credit checks, and so on. Do your research on these lenders' websites, and even call them yourself. One of the best  things you can do is ask someone who's had loans before with the lenders or people who've had a lot of private loan experience. Typically, parents are a great resource since they've had home loans, car loans, etc., and this loan will be similar.

As a reminder, you should only look at private student loans after you've received as much scholarships, grants, other free money, and federal loans as you can get. If you don't need a private loan, then don't get it. There are strict limits on federal loans, but private loans work differently. The horror stories you will read on the internet about student loan repayments being out of control are mostly from the private loan debt. But in the end, someone once said "There's no such thing as a stupid question," and if you ask questions about your lenders, then you'll find out who to use.


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