Private Student Loans Can Help Fill a Gap – But Savvy Students and
Parents do Lots of Homework and Thinking to Guide Their Borrowing
Private Student Loans 101
NEW YORK, July 30 /PRNewswire/ — In the heat of summer, parents
and students sweat over the cost of college and how to pay for it. The
best approach is to sweat just a bit more by doing all the homework when
it comes to knowing the real cost of college, where to look for free and
cheap money, and determining whether and how to make use of private
student loans, i.e., loans that are not backed by the government.
That’s according to MyRichUncle(R)
(http://bit.ly/1w0WV4b), a student loan company and information
source for parents and students.
“Parents and students who are in the process of assembling a
plan to pay for college do themselves a major favor by doing lots of leg
work, research and shopping around when it comes to calculating whether
to borrow, how much and from whom to borrow,” said
MyRichUncle’s John P. Derham. “Cutting corners, accepting an
aid package without investigating it and over-borrowing can cause
parents and students serious money problems down the line.”
According to a recent survey of 1,000 parents with children in
college or soon to enter college sponsored by MyRichUncle, 69% of
parents believe their children will have to borrow to pay for college.
Yet 57% of parents with children soon to go to college say they are not
confident they know which loans should be applied for first, and similar
percentages say they don’t understand the range of interest rates
on student loans and the repayment options.
“There are a lot of misconceptions and disconnects when it
comes to paying for college, and they can be costly. Parents and
students — especially in this tight economy — need to make the effort
to understand the landscape and what it takes to make smart moves.
Bottom line: Don’t just take the first aid package that’s
offered,” Mr. Derham said.
The Rules of Thumb
Mr. Derham and his colleagues offer rules of thumb for financing a
college education — including the basics of smart use of private
student loans. For instance …
– Sit down and do the math to learn the real, total cost of an
education, over and above tuition and fees. Taking into account the cost
of books, transportation, housing and food will help prevent students
from getting into a jam — one that forces rash, expensive borrowing
mistakes.
– Know the “sequence” of funds to tap to pay college
bills. First look for “free money.” That usually means
scholarships and grants. “Apply for them. It’s worth the
effort,” said Mr. Derham. The next step for many families will be
borrowing, and the rule of thumb here is to locate and secure the least
expensive borrowing options first. Look at all the sources available to
you — from federally-guaranteed and private student loans to personal
and home equity loans — and exhaust the least expensive loan money
before moving on to other sources.
– Never borrow a dollar more than absolutely necessary.
“While it’s sometimes tempting to use loans to have a little
‘cash cushion,’ borrowers will regret that decision when
it’s time to repay. The worst attitude is, ‘I’ll just
worry about it later.’ You need to pay back more than just the
amount you borrowed; interest will capitalize on most student loans so
minimizing the borrowing is critical in managing what you will
repay,” Mr. Derham said.
– Do not let talk of the “credit crunch” lead to rash
decisions: Federally-guaranteed loans are available to everyone who
qualifies for them, from a variety of sources. Smart parents and
students fill out the FAFSA form to qualify for federally-guaranteed
loans. If they qualify, it is worthwhile to check the rates and
discounts of several lenders in order to secure the best deal.
– Consider private student loans — i.e., ones not
federally-guaranteed — to fill a cost gap, but shop hard for those. If
there is a cost gap that needs to be filled with a private loan, shop
hard for that loan. Just one percentage point difference in the rate of
interest is significant when it comes to the amount of debt being
accumulated. For instance, the payback difference between a $10,000 loan
with deferred repayment plan at a 8.69% interest rate and one with a
6.92% interest rate is $5,700 — more than half the amount of the loan
itself!
– Be your own best resource for finding the best deals. Take the
savvy shopper you are when it comes locating the cheapest gas, shopping
for best discounts on groceries or comparing rates on car insurance, and
put that to work on your student loans. Search beyond the preferred
lender of your school by getting on the Internet, visiting your local
bank, and even credit unions. Shop, compare and take the lowest rate –
it’s too important not to be actively involved in your lender
selection process.
– Is there a co-signer with strong credit? Students often get
better — i.e., lower — rates on private loans if they have a
co-signer, like a parent or other relative, who has strong credit.
– Understand the benefits/costs of deferring repayment until after
graduation. While deferring monthly payments on your private student
loan will be less financially taxing on the student while in school, the
amount of actual debt will be significantly higher than if the student
started repayment immediately. “A good — and realistic — way to
think about the deferment option is that your debt level gets bigger
every day that you’re deferring. If it’s possible to start
making on-time monthly payments in school, do it,” said Mr. Derham.
– Take a hard, unemotional look at the job and salary prospects
for a field or major. As difficult as it may be, it is worthwhile to
research whether one’s chosen field of study or area of career
interest will be able to support what it will cost to pay back this
investment in education. If the prospects appear challenging, it might
be worth starting off at a less expensive — e.g., two-year — school or
thinking about career alternatives.
“Seventy-six percent of parents told us the return on
investment in an education is a ‘good’ to ‘great’
value,” added Derham. “Parents and students can ensure the
value proposition by being smart, selective and savvy about paying for
their education. We want families to make better decisions today, for
the sake of the decisions they will want to have the opportunity to make
in their future.”
MyRichUncle’s web site, http://bit.ly/1w0WV4b, provides
further guidance for parents and students solving the puzzle of funding
a college education.
About MyRichUncle(R)
From its inception in 2000, MyRichUncle(R), the consumer brand of
MRU Holdings, Inc. has been at the forefront of innovation for
education finance, most recently focusing on the growth market of
student loans. Since May of 2005, MyRichUncle has originated more than
$450 million private and federal student loans using its breakthrough
underwriting platforms and innovative technology to deliver
competitively priced products and services to borrowers. In May 2006,
the Company launched Preprime(TM), the first and only student loan that
allows students to qualify for loans based on individual merit, rather
than credit history alone. Dedicated to reshaping the student loan
industry to function in the best interests of students, founders Vishal
Garg and Raza Khan and their team are committed to delivering the most
innovative solutions for their customers. The Company and its founders
have been recognized by Fast Company’s Fast 50 (2006) and listed
among BusinessWeek.com’s Tech’s Best Young Entrepreneurs
(2006). For more information, visit http://bit.ly/1w0WV4b.
UNCLG
CONTACT: Karin Pellmann, VP, Public Relations, +1-212-444-7541
(direct), kpellmann@myrichuncle.com; or Adria Greenberg of Sommerfield
Communications, +1-212-255-8386, Adria@sommerfield.com
Web site: http://bit.ly/1w0WV4b
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