Know the College Loan Process

Information to Get You the Best Rate and the Lowest Student Loan

The college loan process confuses most parents who have made the decision to send their children to more expensive schools than they can afford. Based on the rate of tuition increases, more and more parents are now falling into this category. The most recent college loan scandal at Columbia University brings to light strong conflicts of interest between the lending institutions and colleges.

The Financial Aid Package

Most parents assume their college financial aid package includes a combination of the best loans and grants available to the institution. Columbia University’s situation highlights a few issues with this process. The most obvious conflict comes at the college/bank level. With 13,000 students or more applying to most large schools every year, becoming the preferred lender to an institution can mean big bucks for banks. Most institutions recognize this and have a system in place to prevent impropriety.

Despite these systems, many officials are still influenced by bank representatives. This influence might mean higher rates and a less competitive loan package at some institutions. Considering the amount of debt that will be financed over the course of a four year education, higher rates could mean paying thousands of additional dollars in student and parent loans.

How Can Parents and Students be sure they get the Best Financing?

First, parents should really shop around. While the school can recommend parents and students get loans through certain banks, parents and students have every right to find there own financing. The number of banks lending to parents and students for college loans has grown with the rapid increase in tuitions. Borrowers could really miss out on better terms and rates by not going to other lenders.

Second, borrowers should look into alternate means of financing education. This could be as simple as taking out a home equity loan if there is sufficient equity in your home. There are many individuals, who buy investment property when their children are young, for the sole purpose of financing their education through this vehicle. Other sources to consider are your 401k or IRA. Forward thinking parents should consider investing in an education IRA. This type of IRA can be drawn down once your child enrolls in college and can significantly defray the cost of tuition. Remember, if you borrower against your 401k you will need to repay this loan to keep your retirement safe.

Last, negotiate the financial aid package. The best way to ensure you are not getting higher loans rates is to not take on loans at all. Sadly, many parents and students don’t realize that their financial packages are negotiable. This is not to say that all of your loans will be miraculously replaced by grants, but rather to say that any victory you get at this stage will be magnified upon graduation. Make sure you ask about future packages as well. Many institutions offer great first year financing, but give far less in consecutive years. Ask as many questions as you can up front to avoid surprises.

Bottom line, go into college loan financing with your eyes open. You are the best person to keep your best interest in mind. Ensure you get the best deal by shopping around, asking questions, and saving early.