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Paying for College

Being a Wise Borrower

One of the most enjoyable aspects of my job is working with families throughout the year on planning and paying for college.  Even after so many years of educating families, the universal question and concern by all folks is the question of how they will pay for college and if they have to borrow (which most will) which loan is best. Here are some of the tips and information I have shared with families over the years and outlined below so that you can have them handy.

Gather and evaluate the data:
It is the wise borrower who understands that deciding on a college loan requires gathering and evaluating all details of the entire loan, not simply a single element such as the rate you see advertised.  Collecting key information on multiple loan options, comparing them and then deciding which one is the right fit are the steps to take before committing to any type of private alternative loan.

Understand financing fundamentals:
As you begin the process of evaluating private loans, understanding the fundamentals of financing is in your best interest.  For instance, you should understand what the difference between a fixed interest rate loan and a variable interest rate loan is.  It's simple… the interest and or the payment on a variable interest rate loan will likely increase as the current market interest rate increases whereas the interest and payment on a fixed interest rate loan remains the same for the life of the loan. We have all seen an advertised interest rate on a private alternative loan.  Oftentimes, these rates are the lowest advertised rates but will be offered only to those individuals with near perfect credit and in reality borrowers with good or fair credit may be offered an interest rate that is much higher.  As a borrower  you should always know and understand what the actual interest rate is, whether it is fixed or variable, and if there is an interest rate cap, before you borrow.

Why the APR is important:
It is best to compare loans based upon the annual percentage rate (APR) of the loan. The APR reflects the total cost of borrowing over the life of the loan, factoring in the interest rate, fees and the length of repayment.

The benefit of a monthly tuition payment plan:
When looking at the ways to pay for college, you should investigate combining a monthly tuition payment plan offered by many colleges with a loan as a way to reduce overall borrowing. Look for a loan payment calculator like this one on the MEFA website which will allow you to see the monthly payment on your loan, and how much you are able to save if you combine a MEFA loan with a monthly payment plan.

The importance of federal financial aid:
Finally, and most importantly, a student should always exhaust their federal financial aid options first before seeking any private alternative loans to help meet the cost of college.

With all the excitement about sending a child off to college, and the pressure to pay the bill, it is easy to settle for the first loan that comes along.  As I said at the start and I will continue to remind you and others;  always be wise borrowers. Do your homework  and compare, and then select the loan with the best options that are right for you and your family.







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