Student Loans

Student loans are a great way to finance your college education. A student loan generally has a lower interest rate than a personal credit card or a personal loan. Most student loans will not make you pay them back until after you graduate. If you cannot afford to pay the high tuition costs, then you should look into a student loan.

Student loans come in 3 major categories: student loans, parent loans, and private loans. Student loans are the most common and are administered through the US Department of Education. Generally these loans are the easiest to qualify for and have the lowest interest rate. Parent loans allow a parent to fund the entire cost of their child's college education through a federal loan. Private student loans are administered by several lending institutions. With a private student loan, you may end up paying a larger interest rate than you would for a federal student loan.

It is estimated that 65.7% of 4-year undergraduate students graduate with some form of debt. The average student loan debt among graduating seniors is $19,237. Of course, if you plan to attend graduate school, you are looking to have more than $27,000 in debt. You can look into other alternatives when it comes to saving money for college. Scholarships, work-study, and federal grants are common ways to finance your college education however they do not usually cover all of the expenses you will incur.

A nice benefit to a student loan is that you can deduct up to $2,500 in student loan interest even if you don't itemize your taxes. Most student loans have flexible repayment terms, allowing you to get through college without paying a penny until you graduate. Of course, you need to be prepared to pay back the money you borrowed when the time comes. There are loan forgiveness plans to those who qualify. Typically loan forgiveness is offered to military members and others who give public or volunteer service.

Federal Student Loan

In order to get started with a federal student loan, you need to start with a few things. First, contact your college or university and discuss you payment options. Some colleges will allow you to pay your tuition in payment plans, while others will inform you of your student loan options.

If you choose a federal student loan, you will need to submit a free application for Federal Student Aid (FAFSA). The FAFSA will include your personal information, your parents information (if you are their dependant), and income information. You will need to apply for a PIN before you can submit your application. The PIN is a way to provide an online signature to the terms and conditions of the FAFSA. The FAFSA will be reviewed and you will be told if you are eligible to apply for a Stafford loan. If you are applying for a subsidized Stafford loan, you must have financial needs that are determined by your school. In order to apply for a federal student loan, you must be a U.S. citizen or national, a U.S. permanent resident, or an eligible non-resident. You must be enrolled in at least 6 to 12 credit hours of school. If you have an education grant, you must not owe a refund on this amount and if you have an existing education loan, you must not be in default.

There are 2 different types of federal Stafford loans; subsidized and unsubsidized. A subsidized Stafford loan is a need-based loan that does not accrue interest when you are in school. You will have a 6 month grace period immediately following the repayment period. An unsubsidized Stafford loan is a loan that is not a need-based loan. You are responsible for all of the interest that accrues on the loan, including the time while you are in school.

Perkins loans are another federal student loan that is designed to help a student who has extraordinary financial needs. Perkins loans are hard to qualify for, but they are available for undergraduate and graduate students. A Perkins loan has a lower and lifetime limit on borrowing and it is free from origination fees. Perkins loans also have smaller interest rates and the interest on this loan is paid by the government while you are enrolled in school.

Parent Loans

PLUS loans are popular among parents who are looking to finance their child's education. A plus loan allows you to borrow enough money to fund whatever need is not met by other financial aid programs. A PLUS loan allows you to completely pay for college with almost no money out of pocket. The downside to a PLUS loan is that your first payment may be due as early as 60 days from the loan's disbursement. The PLUS loan is a higher interest rate than other loans and is subject to origination feed of up to 4%. In order to qualify for a PLUS loan you must have good credit and be willing to compromise flexible payment options.

Private Student Loan

A private student loan is similar to a federal student loan in that you can borrow the needed money to pay for school expenses. Many people who apply for a private student loan will need a cosigner. If you do not wish to have a cosigner, you need to have at least 27 months of credit history. A cosigner will help you get a lower interest rate and a larger loan amount. In order to qualify for a private student loan you must meet the following requirements:

• Enrolled in at least 6 credit hours at an eligible college or university
  
• Must be a U.S. citizen or a permanent resident or have a cosigner who is
  
• You must be at least 18 years of age or have a cosigner who is of legal age
  
• 27 months of credit history if you do not have a cosigner

A private student loan is based on your income and credit history. If you have good credit, you can expect to get a lower interest rate. A private student loan should only be considered after you have applied for federal loans, grants, and scholarships.

Similar to a federal student loan, a private student loan can be used for education-related expenses like tuition, fees, books, transportation costs, room and board. Depending upon the lender you choose, you may be able to use the money for other expenses as well. Usually there is not a deadline to submit your application for a private student loan. You should receive an immediate credit decision once you submit your application. If you are approved for a private loan, you can receive the money in as little as 10 days.

Like a federal student loan, the interest on your student loan is tax deductible. The interest rates will be determined by your credit history, your cosigner's history, and current economic conditions. You can obtain a private student loan from banks, private lender, and other financial institutions that provide private student loans. Depending upon the loan you sig, the repayment period can last anywhere from 1-25 years. If you obtain a private student loan, begin making interest-only payments immediately. If you choose not to pay at all, any interest you defer will be added to your balance when you begin making your loan payments.

What to consider with a student loan

When you are shopping for a private student loan, compare interest rates and fees with at least 4 lenders. Many lenders will offer borrower benefits that will reduce the principal or interest on a private student loan. Find out all the detail you can about the loan before you sign. You need to be specific about your payment options and the interest information.

Student loans can influence your credit and future financial decisions. If student loan debt exceeds 8 percent of your income, it can negatively impact your credit when it is assessed for future loans. If you have a federal loan and you need a private student loan to help pay for the additional costs, you should keep this amount separate.

Decide if you can afford to pay back the amount you owe on your student loan. Your federal student loan needs to be consolidated first because it has a lower interest rate than your private student loan will. You should consider consolidating your student loan debt because you have the opportunity to negotiate for a better interest rate and lower monthly payments. Plus, you can have one monthly payment versus two or three.

A student loan is not free money. Many students are shocked to find out that when they graduate, they are expected to pay back all of the money they borrowed. Some students have no idea how much they borrowed and are surprised to see a bill for $19,000 come in the mail. Before you continue to apply for student loans, find out how much a semester of college costs and times that by the number of semesters you will be attending. Once you have this number, determine if you can realistically afford to pay back this number.