The ABC's of Private Student Loans:

When considering tuition loan options, it's important to know exactly what is being offered. Know your interest rate and if it is fixed or variable (more on this below) and the length of time you're committing to paying off your loan, as well as fully understanding what, if any incentives there are for early payment. This is a primer on how to begin to approach this complex topic.

Here are some of the things you need to consider before signing on the bottom line.

Federal Loans. Federally approved vocational schools that offer federal student loans from our Department of Education are co-regulated by their states regulatory board of governance and our country's Department of Education. Federal loan instruments are well described in brochures from the government, found online, and will also appear within a school's catalog so that before signing, you should have all of your facts in place. Google federal student loans / features and benefits and you will find volumes of information on federal government loans.

State Approved Schools and Private Loans. This article focuses on private state approved schools that offer private student loans. It's important to know that state approved vocational schools must work to the standards set by their states school regulatory board. In many instances, these standards are similar if not identical to federal approval standards. In terms of curriculum oversight, consumer contractual obligations and in areas of financial oversight, state approved schools must follow the laws of their state board and almost all contracts used by students including catalog wording, comes directly from a state-authored template of operational terms and conditions. These rules of operation are in every instance put into law through State Assembly bills that are passed over time. Using California as an example, their approved vocational schools that offer Cosmetology, Esthetics, Electrology or Nail Technician programs, are regulated and policed by the California Department of Consumer Affairs. This is done through two sub-agencies that fall under Consumer Affairs overview, the Bureau for Private Postsecondary Education (BPPE) and its Board of Barbering and Cosmetology. Through these departments, Consumer Affairs regulates all school activity within California by enforcing the use of mandatory wording for everything from enrollment documents to timecards and catalog copy. State approved schools that vary from their states rules of operation can be sited, suspended, fined and closed just like federally approved schools that deviate from their required standards of operation. That said, private state vocational schools that are not co-regulated by our Department of Education and cannot offer federal student loans or grants.

Pay-Direct Borrower Benefits. State approved vocational schools will frequently allow students to pay them directly over the timeline laid out on their enrollment agreements. For example, if you offer to pay your tuition in equal monthly installments and your school tells you that interest applies to your declining balance, ask if you can pay, interest-free. Interest is frequently charged as a deterrent to not paying on time. Suggestion; offer to pay on time by letting your school charge your monthly tuition payments to your debit or credit card on a specific day each month, and see if they will waive interest on your loan.

Many, but not all state and federally approved schools will have a pay-direct, interest-free option. It's simply a matter of asking to determine if this option is available. If so, you can save a lot of money over time in interest fees.

Fixed or Variable interest rates. Private school third party loans can come in two forms, with fixed or variable interest rates. With variable rates, what you pay in interest can change over time so be sure you know what type of interest applies before committing. A fixed rate is preferable because you always know what your payment will be over the term of your debt obligation. If your loan does have a variable rate, be sure that there is a cap on the amount that interest can rise over the term of your loan. Today, it isn't hard to find loans with fixed rates. You simply have to be aware that variable rates exist and avoid them at all cost.

Co-signers. When entering a private for profit state approved vocational school that offers payment terms that go well beyond your time in school, you will find that the school is usually working with a third party lender who does charge interest based upon your credit score (FICO score) and payment history. If this is the case, and if having longer to pay than your time in school works to your benefit, ask about the features of the consumer loan(s) they're offering. An initial short application is usually completed with an initial approval given prior to a secondary form being offered that will ask for more details on your employment history, income, and other debts you may have. On the secondary form you will generally see an opportunity to add a co-signer. For young students who may not have sufficient credit history, and for those who have had credit problems in the past, the addition of a co-signer is a blessing because with a co-signer who has good or excellent credit, your interest rate can be reduced. At times, a co-signer will make the difference between getting a loan approved and being declined all together. Parents, grandparents, older siblings as well as other family members who are financially secure are good choices.

Private Lender Incentives. Some lenders will charge rates that are in excess of what credit card companies charge but as incentive to use their lending services they may offer “6 months same as cash” meaning that if you pay within 6 months, payments made to date toward principal and interest will convert to all principal payments. In other words upon conversion you'll have only paid principal and your final payout will satisfy the terms of your debt obligation without a cent of interest being paid.

No Pre-payment Penalties. Look for the option of paying out your loan at any time without pre-payment penalties. This often coincides with the option of over-paying or making balloon payments when you have extra cash to put toward your outstanding balance. It's important to know that you can pay off your tuition at any time without incurring fees and that you'll only pay interest up to the day you pay off your loan. Before agreeing to a loan, sure that you are not obliged to pay all interest for the entire term of the loan, regardless of your early pay-off date. No pre-payment penalties should mean just that…no fees or penalties added for early payment of your tuition.