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Smart Borrowing

When you're thinking about applying for a loan, also think about getting a cosigner Cosigner - An additional applicant added to a loan to meet the creditworthiness guidelines, usually a parent but not always. A cosigner will have the same legal responsibility on the loan as the primary borrower., such as a parent or guardian. By having a good, credit-worthy cosigner, you better your chances for being approved and may be able to get a better rate on your loan. As a smart borrower, also be sure you can pay back on time because there are penalties for late payments.

Know that interest rates can and do change over time.

A smart borrower should always know the interest rate they've signed up for, and be aware of the terms of the loan. Be careful not to borrow more than you need or can comfortably repay based on your expected salary after you graduate. Only 8-10% of your pay should have to go toward loan repayments.*.

Many students are unaware that they could be penalized for missing a payment, or paying late.

Make sure that you can afford the monthly payments should your interest rate go up. If you have difficulty making payments on time, your lender may provide you with a temporary delay of your monthly payments.

Make sure you are not penalized if you pay off your loan early.

You may have a number of repayment options with an undergraduate private loan Private Loans - Loans that are not sponsored by the federal government. Private loans, funded by private companies, are not subject to the same restrictions as federal loans.. You can decide not to pay a dime until after graduation (or dropping below half-time), once your education starts to pay off, or begin repaying right away and start building that all-important credit history!

When choosing your repayment option, here are some important things to keep in mind:

  • Interest rates are often variable, so the rate you have when you take out your loan may not be the same rate by the time you've finished repaying it.
  • Making payments during college, even small ones, can make a big difference to the amount you'll owe over the life of the loan.
  • If you can afford higher monthly payments after graduation, choosing a shorter loan term (10 years vs. 20 years) can also reduce the overall amount you'll owe.

Managing Your Credit

Creditworthiness: Creditworthiness is the most important criterion determining whether or not you get a loan. It is a snapshot of how good you have been at paying back loans and how much debt you currently carry. The better your credit rating, the better your chances of getting a loan at a lower interest rate.

Importance of Cosigners: Because students often have no credit history, a cosigner is someone who helps lenders be confident the loan will be repaid and, as a result, may let them offer a lower rate. Parents or guardians with a good credit rating are good cosigners.

Credit History/Ratings: Because creditworthiness is so important, it's good to know and keep abreast of where you stand. Your credit history is the record of your debt payment, including late payments and bankruptcies. It's smart to check on it and you are entitled to one free credit history check per year from all three major reporting agencies. You can obtain your credit report by going to

To learn more, go to the Federal Trade Commission website

Credit Scores

As lenders become more selective about who qualifies for a loan and who doesn't, creditworthiness becomes much more important. And the way that is measure is called your credit score Credit Score - Your credit score is a number based on the information in your credit file that shows how likely you are to pay a loan back on time — the higher your score, the less risk you represent.. For example, FICO Credit scores range from 300 to 850. Of course, the higher your credit score, the better your chances of getting the loan you want.

Here are some criteria on which your credit score is based:

  • Your history of on-time payment. Paying your bills on time is the single biggest factor.
  • How much credit you use each month out of all your available credit.
  • Your credit history length. The longer you're with a creditor, the better your creditworthiness.
  • Recent credit inquiries. In this case, the fewer the better.
  • How you manage different kinds of debt. This takes a look at the big picture of all your debt from credit cards to mortgage.

* Deanne Loonin of the National Consumer Law Center, Tim Ranzetta of Student Lending Analytics, and Mark Kantrowitz of the Web site

Borrower's "Bill of Rights"

For those who need to take out loans to help pay for college, borrowing can sometimes be overwhelming, and even downright intimidating. It's important to remember that regardless of whom you're borrowing from or how much you need, always keep in mind what is most important to YOU. This may relieve some of the pressure and help you to make the best decision for you and your family.

You Should Expect:

  1. Fair, transparent, and flexible financial solutions to achieve your education dreams.
  2. Assurance that your lender is treating you in an honest, forthright manner in every step of the lending process – from the advertising to the fulfillment to the servicing.
  3. A lender who clearly describes your interest rate, offers no-penalty provisions for paying your loan off early, provides full disclosure about the impact of payback decisions like deferring until after graduation, and clearly explains all the costs that come with your loan.
  4. Marketing information that is clear, accurate and not misleading.
  5. Your lender to meet the highest ethical standards, and to back up their standards in writing.