What student loan should you get? Consider a loan with a low-interest rate, several repayment options, and borrower protections if you’re unsure which one to select.
When you’re figuring out how to pay off your college loan, keep in mind that choosing the right one might make a big difference.
In this article, we’ll break down the different types of student loans so you can decide which one is best for you.
- What Federal Student Loans Are Available To You?
- How to Apply for a Federal Loan As a Student (Step-by-step)
- How to Choose a Private Student Loan
- Frequently Asked Questions
What Federal Student Loans Are Available To You?
Fixed interest rates are common on federal loans, which are often less expensive than private loans.
The government has established a variety of repayment alternatives to assist individuals in determining which solution is suitable for them.
There are 3 types of federal direct loans:
1. Direct Subsidized Loans for Students
To meet the criteria for Direct Subsidized loans, you must be a qualified student with demonstrated financial need.
If you’re in school or on deferment, you won’t have to pay anything for interest since there are no payments until you’ve been out of school for 6 months.
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2. Direct Unsubsidized Loans for Students
Direct Unsubsidized loans are not linked to one’s financial situation. The loan amount is determined by attendance costs and financial aid.
You must show proof of employment to qualify for these loans.
During deferment periods, interest is charged and added to the principal, or disbursed an amount of your loan, at all times.
You can postpone your payments until 6 months after you graduate.
3. Direct PLUS Loans for graduates and professional
Graduate professional students and parents of dependent undergrads (known as parent PLUS loans) may borrow up to the full cost of attendance for a term not exceeding 7 years.
The interest rates are greater than those for other federal student loans, and you may borrow up to the cost of education.
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How to Apply for a Federal Loan As a Student (Step-by-step)
To be eligible for federal loans and scholarships, you must complete them every year.
Step 2: The federal government transmits a copy of your FAFSA to the colleges to which you apply.
The financial aid office at your college or university determines your financial aid package and sends you a financial aid award letter.
The letter will describe gift aid such as free scholarships and grants, work-study, and any other loans you may qualify for.
Step 3: Before applying for federal loans, accept all available free money and work-study.
If you’re approved for a loan, you may be offered one or more federal loans. If you don’t need them, don’t accept them all.
Step 4: After that, you’ll sign a master promissory note outlining the loan’s conditions, followed by a quick online loan counseling session if you decide to take out federal loans.
If you have a student loan credit on your education bill, which indicates that you took in more loans than were required for tuition, you may get a refund and spend it on living expenses.
If the federal aid and family contributions aren’t enough to cover the total amount, you may need to take out private loans.
How to Choose a Private Student Loan
Compare your options, such as commercial banks, credit unions, trust companies, and online lending platforms, to see which one offers you the best terms.
When you compare your available options consider the following 4 points:
- The fees.
- Interest rates.
- The length of time you’ll be repaying your loan
- Other options for stopping payments if you find yourself in a money crunch.
Because you most likely have no credit, you will almost always require the assistance of a co-signer on your application. This may work in your favor.
A co-signer is someone who has a high credit score and can vouch for you.
This may improve the application process and give the borrower a better chance of approval, as well as help to lower the interest rate.
Your co-signer, on the other hand, will be responsible for paying off the debt as well.
Hint: Look for a lender who will allow your co-signer to be relieved once you’ve made a specific number of payments.
You should borrow a sum equal to or more than the amount needed to keep payments at or below 10% of your anticipated monthly earnings after college if you want to keep your debt levels low.
Frequently Asked Questions
Marie got her journalism degree from the University of California and is an award-winning financial journalist, who’s responsible for collecting and analyzing information concerning students and young adults within the world of finance.
Marie has spent her career with more than 5 years writing for unique media outlets like Yahoo finance, GoBankingRates, and CNBC. She also teaches them how to plan strategically to get out of loan debts easily.
Her goal is to educate students about the different stages in life that involve finances so they can get their money’s worth.