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Education loans you want to avoid

Posted by Lindie Johnson on Apr 24, 2017 6:16:00 AM

We spend a lot of time talking to potential borrowers about student loans, and we think it’s important to talk about the pitfalls and risks along with the benefits. With that in mind, here are the student loans that you’ll want to avoid.

High Fee Loans

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It’s important to read the small print and carefully review all disclosures that are presented to you, even when you’re so tired of being mired down in the details that the words all start to blur together. Is there an origination fee or other kind of fee on the loan? 4%, for example, may seem like a pretty small fee, but on a $20,000, that adds up to $800. Going with a loan with no upfront fees could save you hundreds right up front. Also pay attention to back-end fees, like late fees, returned check fees, etc. You want to avoid being late or missing a payment but it is good to know what will happen if you have a month or two where you forget to make your payment on time or don't have the necessary funds in your bank account.

While Federal loans have standardized fees (for example, on Federal Subsidized and Unsubsidized student loans, the fee is 1.069% as of 4/1/2017 and for Federal PLUS Loans, the fee is currently 4.276%), private lenders are all over the board - some have zero fees - others have upfront fees higher than 5%!

Loans You Can't Afford to Repay

One of the biggest borrowing pitfalls is borrowing more money than you need or more money than you can afford to pay back. It’s a tempting mistake, because college students on tight budgets have a tough time saying “no’ to a few extra bucks. But trust us on this one – it will never be worth it to borrow more than you absolutely have to (or can afford!) in order to cover the cost of attendance.

Bad terms for bad credit

If you have a credit problem, it’s time to consider a co-signer with good credit. The alternative is that you find a lender who is comfortable with the risk your poor credit presents – and you will pay dearly for it! If you insist on borrowing from a private lender with bad credit and no cosigner, expect to either get denied or to pay exorbitant interest rates and excessive fees.

Remember that Federal Direct Subsidized and Unsubsidized loans aren’t dependent on credit (the Federal PLUS Loan is).

With so many good loan products in the marketplace, it’s a wonder that predatory lending, hidden fees, and over-borrowing remain so prevalent in the world of educational loans. Borrow smart, and you’ll thank yourself during repayment!

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Topics: Borrowing for College