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Navigating private student loans


In the wake of rising student loan debt, parents and students are more aware than ever of the cost of higher education and the importance of saving for college.

Many parents invest in tax-advantaged education plans – such as 529 plans or Coverdell Education Savings Accounts – and many students consider cost when making their college choice.

But every now and then plans go awry. Parents sometimes don’t save as much as they wish they had and students sometimes choose a dream school over a better financial aid package. And that’s when private student loans may become a necessity.

Ideally, students should prioritize federal loans – they are cheaper and have better repayment terms – but there are limits to the size of those loans. Should your student reach the federal loan limit, private student loans are an option.

However, make sure you research private student loans before you use them. According to The Wall Street Journal, 25% of families don’t comparison shop for private loans – a potentially costly mistake. Here are some other tips to consider should your young scholar need a private student loan to help cover education costs.

  • Apply for several loans to compare actual interest rates and fees. Just because a loan has the lowest advertised rate doesn’t mean it’s the rate you’ll be offered.
  • Variable-rate loans’ interest rates are just that: variable. Over time, those rates may increase beyond those of a fixed-rate loan.
  • Consider signing up for auto-payments. Many lenders offer interest rate discounts of 0.25% - 0.50% for auto-payment enrollment.

Please speak with your student’s college or university financial aid office for more information about student loans, scholarships and other college funding sources. If you’d like to learn more about 529 college savings plans, Coverdell Education Savings Accounts or other ways to fund your child’s education, contact a financial advisor with Waddell & Reed.

Need more insight? Let us be your guide.

Our national network of experienced financial advisors can help you create a personalized plan to help you identify financial goals and get you where you want to go in life.

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Associated Tags: Saving for College, Student Loans, 529 Plans

The Ivy InvestEd 529 Plan is offered by Waddell & Reed, Inc. as part of the Arizona Family College Savings Program (the “Program”). Waddell & Reed, Inc. is one of multiple financial institutions eligible to offer investments under the Program.

Non-residents or tax-payers of states other than Arizona should consider participating in the 529 plan(s) available in their state of residence as such plan(s) may offer more favorable state income tax or other benefits than those offered under the Ivy InvestEd 529 Plan. Please consult your tax advisor regarding your personal tax situation.

Accounts are not insured by the State of Arizona, the Family College Savings Program Trust Fund (”the Trust”), the Arizona Commission for Postsecondary Education, or any other governmental entity, Waddell & Reed, Inc., or any affiliated or related party, and neither the principal deposited nor the investment return is guaranteed by any of the above referenced parties.

Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of the IVY InvestEd℠ 529 PLAN. This and other important information is contained in the IVY InvestEd℠ 529 PLAN Program Overview, IVY InvestEd℠ 529 PLAN Account Application, and the prospectuses, or if available, summary prospectuses, all of which may be obtained at or from a financial advisor. Read them carefully before investing.

The availability of tax or other benefits may be conditioned on meeting certain requirements, such as residency or purpose for or timing of distributions. Taxes are deferred until withdrawal. The earnings portion of a non-qualified withdrawal is subject to a 10% penalty as well as federal and/or state taxes.

Investment return and principal value will fluctuate, and it is possible to lose money by investing.

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Please note that the information provided may include references to concepts that have legal, accounting and tax implications. It is not to be construed as legal, accounting or tax advice, and is provided as general information to you to assist in understanding the issues discussed. Neither Waddell & Reed, Inc., nor its Financial Advisors give tax, legal, or accounting advice.

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Securities offered through Waddell & Reed, Inc., Member FINRA/SIPC, are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal. Insurance products are offered through insurance companies with which Waddell & Reed has sales