Not all student loans are student loans; learn more.
Did you know you might not be allowed to pay off your loans early? Some loan agreements have a penalty for overpayment or early payment. When looking for loans, be sure to read the fine print. Keep reading to learn what kind of language to avoid on a loan agreement and what you want to find to save yourself the most money.
Notice we didn’t say student loans. Since the Higher Education Opportunity Act was signed in 2008, amending the Truth in Lending Act, there has been a ban on all student loan penalties, both federal and private.
So as a student, the first thing you want to avoid when signing a loan agreement is any contract that doesn’t make it a student loan. Student loan funds are restricted to the cost of attendance but – ‘cost of attendance’ has a broad definition. That means you can spend it on tuition, books, school supplies, room & board, transportation, and personal expenses. You can’t buy a new car, but you will have an allowance for transportation costs.
You’re a student. Everyone knows it. That means everyone who is trying to sell you something is going to tell you it’s special, just for students. From computers to loans. Yes, loans.
Student loans are a very specific thing. As mentioned above, there is legislation that dictates a lot about student loans. However, that doesn’t stop shady lenders from marketing regular loans to students.
This often skirts the law, and this is when you need to pay the most attention. If the lender tells you the loan can pay for a car or vacations – they are not being 100% honest with you. The lender may structure the loan to look like a student loan, however, unlike a student loan, you can’t pay it off early without penalty.
These are often predatory loans with high-interest rates. The rate makes you want to pay it off early, but the penalties make it difficult to do so.
What to do?
The easiest way to avoid sketchy loans is to stay with reputable lenders. Sticking with your credit union and federally backed loans will allow you to totally avoid predatory loans.
Your credit union may have loans that are not student loans but designed to help students. The problem is, reputable loans often have a higher bar to pass to get the loan. You’ll need a better credit score or more collateral than a predatory loan. That’s not because your credit union is trying to prevent you from getting the loan, it’s because they want you to be able to afford it. The predatory lender is only looking to make money.
Even if you aren’t looking to borrow…
You might not be in the market for a loan right now, but you are according to lenders. Keeping yourself in good financial health is important even when you don’t think you have anything to worry about. Avoid taking out any credit cards you don’t need. Pay off your balance on time. Don’t borrow money you don’t need to borrow.
It never hurts to sit down with someone at your credit union and do a check-up. Look at what you’re currently doing and what your future needs may be.
College might be a great time to experiment with life and really find out what you want to do. It is not a good time to experiment with finances and dig a hole that will take years for you to dig out. Even though it might take a little more effort to get the loans, federal and legitimate private lenders are going to be a lot easier to deal with in the long run than predatory lenders who don’t care if your financial health takes a hit for their benefit.