Before taking out a student loan, it is a good idea for parents and students alike to read more about the benefits and disadvantages of each type of loan (whether personal, private, or government subsidized) in order to ensure a smooth transition after graduation.
Let us dissect the benefits and possible uses for each of the loans in order to help you narrow down your choices.
There are three types of student loans you can apply for: Federal, private, and personal student loans.
Federal loans are the best option if you can be accepted. There is definitely no debate. Since it is a government loan, it usually has lower interest rates and sometimes can be subsidized so the child does not have accruing interest while they are in school (Subsidized Stafford Loan). These loans also include a 6 month grace period, allowing for the student to find work and settle in before repayment.
One can save lots of money by applying for this loan.
Federal programs are the single largest source of college loans. The two main programs are the Federal Family Education Loan Program (FFELP) and the William D. Ford Federal Direct Loan Program (FDLP).
You can apply for a FFELP loan through many private banks, credit unions, or education finance companies. Although your school might recommend specific institutions, you’re free to get your student loan from any participating financial institution.
This loan has very attractive terms:
* You’ll get lower interest rates compared to other loans.
* Your interest payments may be paid by the federal government while you’re in school.
* You may not need to make loan payments while you’re in school.
* You get longer repayment terms.
* You may benefit from flexible credit requirements.
Some schools participate in the Federal Direct Loan Program, where you get loans with the same terms as FFELP loans, but you borrow from the U.S. Department of Education.
Widely used federal education loans
* Federal Stafford loans
* Federal Perkins loans
* Federal PLUS loans
Private loans are offered by private lenders and companies, and obviously they are in this business to make a hefty profit. The interest rates are a bit higher than federal loans.
However, if the government loan is not enough for you or if you can’t get your loan approved in the federal option, it is still a good idea to use private lenders to get the money you want to continue your education.
Personal student loans are another financial option you have available if you still have an outstanding balance on your cost of college bottom line. Consider personal loans as a last resort, a subset of private student loans. This family of financial products is due some respect: approach them when you are completely apprised of their requirements and contingencies.
Personal loans specifically designed for you, the college student, are not as abundant as private student loans. Typical loan criteria:
* You must be enrolled at least halftime in a degree program.
* You must have a good credit history to be a sole borrower or you can borrow with a co-signor.
* Repayment terms could be limited.
* Maximum loan limits vary, but could be as much as the cost of your total tuition.
If you want to read more, here are some useful links:
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