Loans are a lifeline for millions of Americans. 54 percent of college attendees take one so they can go to school. On average, each borrower takes 37,600 dollars, which covers their tuition and books.
With so many people taking on loans, it makes sense that there are several kinds of loans. Yet the variety can be confusing. Terms like “subsidized” and “high-interest” get battered around, but few people know what they mean.
Before you apply for student loans, consider your different options. Here is your quick guide on how to pay for college.
As the name suggests, federal student loans come from the federal government. The Department of Education acts as the lender, and lawmakers help set conditions like interest rates.
Federal student loans are the most common type of student loans. Many financial advisors regard them as the best student loans since they are easy to apply for and fairly generous. There are two different kinds of them.
Direct subsidized loans are for undergraduate students with financial needs. Financial needs are determined through a formula that considers the cost of attendance and expected family contribution. If the cost is 10,000 dollars and the family can contribute 5,000, a person is eligible for up to 5,000.
Direct unsubsidized loans are for undergraduate and graduate students. Anyone can apply for them, regardless of financial needs.
But the loans start acquiring interest as soon as the student enters school. The rate is 2.75 percent for an undergraduate student. This can add up quickly, though a person can pay them off while they are studying.
Federal student loans are distinct from grants. Grants do not have to be repaid.
But they are available only for students with incredible financial needs. A student whose parent died as an active-service military member may receive a higher grant. You can take a grant and a loan, so do your research on both.
Direct PLUS loans are federal loans, but they have distinctions from subsidized and unsubsidized ones. Their main distinction is that they are for graduate students.
A student cannot have an adverse credit history, though they can add a cosigner. Interest rates lie at 5.30 percent and begin as soon as the person takes out the loan. Repayment begins six months after the student leaves school.
The student must be enrolled at least half-time in a graduate program. They can earn money while studying on their loan. Loans can cover the full cost of attendance, which makes them very valuable.
For parents of dependent students, there are Parent PLUS loans. They give money to cover costs that financial aid does not.
As with grad student PLUS loans, interest adds up while the student is studying. But parent loans have no grace period, so the parents can start repaying it right away.
Direct consolidation loans are also federal loans. Yet they operate differently from any other type.
A student can apply for and receive multiple federal loans at once. What consolidation loans do is combine all of these into one loan. The interest rate is a weighted average of the others, usually producing lower monthly payments.
You can apply for a consolidation loan after you leave school. There is no application fee. You can pay it off through a forgiveness program or repayment plan.
Interest rates vary significantly. While it is usually a good idea to consolidate your loans, you should talk to a financial advisor before doing so. Make sure you plan out how you will pay back your debt.
Private student loans come from private lenders. Most banks and credit unions extend options to parents and students. You can also find a personal or online lender.
The terms, conditions, and interest rates vary substantially. But there are a few things that many private loans share.
The student and parents must have good credit. The higher the credit ratings are, the more generous the loan is.
The student must be enrolled at least part-time in an accredited college or university. The student should try to enroll in a four-year program and get a Bachelor’s degree. Some loans are available for graduate or community college students.
Most loans require a cosigner. This can be the parents of the student themselves. They must agree to pay the loan if the student is unable to do so.
Most private programs do not come with loan forgiveness. This makes developing a strong payment plan essential.
You can take out federal and private loans. A private lender may be more reluctant to extend you a loan if you tell them you have a federal one. Consider your application processes.
Do not take the first offer that comes your way. Shop around for the best conditions and the most generous rates.
Make sure you check your eligibility for student resources, scholarships, and work-studies. Walk through all your options and bear in mind that you can combine programs together.
Learning how to pay for college is essential before you start learning at college. You have several loan options to choose from.
Federal student loans can be subsidized or unsubsidized. Subsidized loans are for students who need financial assistance. Anyone can apply for unsubsidized ones.
Direct PLUS programs are for graduate students. Consolidation loans take several different loans and combine them into one. Private loans range wildly and require a lot of research to find the best ones.
Find tools to pursue your options. Best Student Loans lets you compare programs. Contact us today.
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