Private student loan rates are now starting at just over 1%. Tempting, but here are 4 things to know before you sign up

MarketWatch highlighted these products and services because we believe readers will find them useful. We may earn a commission if you buy products through our links, but our referrals are independent of any compensation we receive.

In addition to choosing your major or whether to study Greek, you need to think about how to pay for four years of higher education. Since college costs – from tuition and fees to room and board to expensive textbooks – can easily exceed $ 30,000 a year, it is often difficult for students and their parents to afford college on their own. This is where student loans come into play.

There are two types of loans that students typically get as part of their funding package: government and private. Federal loans are funded by the US government; Personal loans are used by financial institutions like SoFi and Sallie Mae this can be banks, credit unions, and sometimes other stage agencies. “I always recommend students take out federal loans first before turning to private student loans,” says Mark Kantrowitz, a student loan expert and founder of PrivateStudentsLoans.guru. (In turn, federal loans have cheaper repayment terms and other benefits than private loans.) But when federal loans aren’t enough and you need a private loan, here are the most important things you should know.

1. Personal student loan interest rates are currently very low, but you still have to shop around
It is important to shop around for your personal loan to get the best interest rate possible. At the time of this writing, fixed rates on the low end were all below 4% of Credible, CollegeAve, and serious.

Unlike federal loans, private loans can offer a floating rate. For example, Credible and CollegeAve offer floating rates from just 1.04% at the time of this writing. This may seem tempting because interest rates are so low right now and potentially lower than fixed rates, Kantrowitz said. However, they can increase over the life of the loan which could increase the cost of this loan over time and therefore increase your monthly payment.

“I would recommend getting a floating rate to a borrower only if they are able to repay the loan and intend to do so in full before rates get too high,” he said.
(Check out the lowest rates you can get on private student loans – ab Credible, CollegeAve, and serious – Here).

2. Look for ways to save even more
Something as simple as automatically withdrawing your personal loan payments can save you money over time. Most lenders offer a slight rate cut when you sign up for Auto Pay or Auto Withdrawal, where your monthly payments are automatically transferred directly from your bank account to the lender every month. Lenders like Sallie Mae, Navient and CollegeAve are just a few that offer a 0.25% reduction in the auto pay interest rate.

“It reduces the likelihood that you will be late with a payment. They really like this, and that’s why you can get a quarter to a half percent rate cut depending on the lender, “he said,” as long as you make the auto-payment payments. and that can save you a bit of money. “

Another way to save money on both government and private student loans is to deduct interest on student loans. You can deduct up to $ 2,500 in interest paid the previous year on all government and most private student loans. And depending on your tax bracket, it can save you a few hundred dollars on your tax return.

3. Include the fees in the cost
Fees can sneak up on you and become expensive. While many personal loans incorporate their fees into their interest rates, late fees (on both federal and personal loans) can add up. “In the case of personal loans, fees are basically a form of advance interest that you definitely pay,” says Kantrowitz. “But no matter how you cut it, federal loans will in most cases cost the borrower a lower cost than private loans.”
(Check out the lowest rates you can get on private student loans – ab Credible, CollegeAve, and serious – Here).

4th These loans can have a (negative) impact on your parents’ financial future, so pay on time
If your mom or dad is co-signing your loan, they’re on the hook. That said, if you default on a payment or default on a loan, you will ruin not only your credit, but yours as well. This can affect their ability to take on other forms of debt like credit cards, auto loans, and mortgages, as lenders consider this jointly signed loan to be the parent’s loan.

More than 90% of undergraduate students and 75% of graduate students require a co-signer to qualify for a personal student loan. “When it comes to a private loan, the student has to deal with it very responsibly,” said Kantrowitz. “You have to take them seriously because they not only control their own financial future, but also that of their parents.”
(Check out the lowest rates you can get on private student loans – ab Credible, CollegeAve, and serious – Here).