Student Loan Information
You researched schools and programs and found ones that interest you. You applied, held your breath, crossed your fingers and were accepted (congratulations!). Now the bill has arrived and you are trying to figure out how to pay for it. Don't worry! School can be expensive, but if you plan carefully, you can manage to pay for it. Hopefully you received some form of scholarship or financial aid that doesn't have to be paid back. Because of the high cost of school, the reality is that many financial aid packages also include student loans. Don't let the terminology and the several different kinds of loans available confuse you. Here's a summary of several of the most popular student loan types and how to get started:
- Stafford Loans - These are Federal loans that come in two forms, subsidized and unsubsidized. Subsidized loans are based on need; unsubsidized loans aren't. To see if you qualify for Stafford Loans start by completing the FAFSA (Free Application for Federal Student Aid). As the name implies it is free to fill out and it's worth the effort. The interest on the subsidized Stafford loan is paid by the federal government while the student is in school and during a 6 month grace period after graduation. For the Unsubsidized Stafford the interest accrues while the student is in school and the student is responsible for paying it. Undergraduates may borrow up to $23,000 in Stafford loans ($2,625 during the freshman year, $3,500 during the sophomore year and $5,500 during the third, fourth and fifth years). Graduate students can borrow up to $65,500 including any undergraduate Stafford loans. These limits are for subsidized and unsubsidized combined.
- PLUS Loans - PLUS stands for 'Parent Loans for Undergraduate Students' and they are Federal loans for parents of dependent undergraduate students to help finance the child's education. Parents may borrow up to the full cost of their children's education, less the amount of any other financial aid received. There is a minimal credit check required for the PLUS loan, so a good credit history is required.
- Private Student Loans - A non-governmental loan made by a private lender expressly for paying for college expenses such as tuition, room and board, and other associated costs. Private student loans are based on credit score and usually a credit-worthy co-signer. Sometimes private loans are called "alternative loans". Most private loans have a range of possible interest rate and fee combinations. The pricing combination a borrower gets, if they are approved for the loan, will be determined by the credit profiles of the borrower and co-signer.
Getting Started
If you haven't done so, make sure you or your parents complete the FAFSA form. It's the key that opens the door to your consideration for Federal Student Loans including Stafford and PLUS loans among others. For some reason people dread filling out the FAFSA form, but if you can complete all the paperwork to apply for school you can definitely handle completing the FAFSA and it is definitely worth it since Federal loans offers some of the best terms and lowest rates available.
If you completed the FAFSA and have already received your financial aid package from your school, make sure to carefully read through it and any other information that your school sends you. If you have questions or concerns about your financial aid package, contact your school's financial aid department to discuss them. Going to school is one of life's biggest expenses. You got into school based on your 'smarts' and you are going to school to hopefully become even smarter. Being smart about how you pay for college can save you thousands of dollars. Research your options, ask questions and find the best solution for you. It's extra work now, but later you'll be glad you did it when you realize how much money you saved thanks to your good financial planning.
If, after exhausting all of your Federal student loan options you still need additional money to cover expenses you may want to consider taking out a Private student loans. Rates for Private student loans can be competitive but in general they should be considered your last option to consider. If you can pay for school using Federal loans or other sources of money (how about those Savings Bonds that Grandma and Grandpa have been buying you for your birthday every year since you were born!) it is always better to graduate with as little or no debt as possible. If you definitely need to take out a Private loan consider you options carefully. Look at APR, compare minimum monthly payments and the total cost of loan, find out how soon you have to start paying back the loan and if there are any penalties or fees for paying it back early. Again, don't be afraid to ask questions and even through this is the last thing you want to be thinking about in all the excitement surrounding going to school, you'll be glad you did after you graduate. If possible, apply for private loans with a co-signer. Private loan rates are based on credit scores, so the better the credit risk you are, the better your rates will be. If your parents aren't available to co-sign for you, consider a grandparent, aunt or uncle, or even a close family friend with good credit.
Pulling all of this financing together can be frustrating and confusing, but using resources like PrivateLoanComparison.com to find and compare private student loans can streamline the process and help you find the best options for you.