Smart Borrowing Basics

A student loan is a big commitment that should be considered carefully. Before taking out any student loan, federal or private, you need to understand their costs, benefits, and your responsibilities. This section provides the details and resources you need to make smart borrowing decisions.

The concept of a loan is straightforward: first you borrow money, and then you repay it plus interest.

Student loans should only be considered after you have exhausted all sources of "free money" - grants, scholarships and other awards. If after exhausting all other aid sources you find you still have a college funding gap, you may need to take out a loan.

When comparing loans, compare based on the total cost over the lifetime of the loan. Keep in mind that you may need to meet certain requirements to access lower interest rates, borrower benefits or promotions; such as signing up for automatic payments to get a reduced interest rate.

Borrowing or cosigning a private student loan is a serious financial commitment. Depending on your credit profile, private loans may have higher interest rates that can make them more expensive than Federal student loan options. Be sure to exhaust all Federal loan eligibility before borrowing or cosigning an alternative loan.

If a private loan is needed, student borrowers may secure better terms and pricing by adding a credit worthy cosigner to their application. Always check the interest rate, fees, interest capitalization policy, repayment period, prepayment penalties and other terms and conditions of the loan before you sign or cosign a promissory note.

Learn more about interest rates, fees and interest capitalization.