Congratulations! You’ve now received your acceptance letters and are ready to go to college.
Your financial aid package will be the second important letter you receive once you’ve been admitted to college. The cost of higher education continues to rise in the US. The average annual tuition and fees for undergraduate students at public universities are $17,237, while private schools are $44,551, according to the most recent data from the National Center for Education Statistics.
Nearly 70% were college graduates who took out student loans to help pay college costs. We will break down the loan options that were outlined in your financial aid package, as well as other types of student loans we can recommend.
Federal Student Loans
Your FREE Application for Federal Student Aid will determine the amount of financial aid that you receive from the federal government. You should complete both the FAFSA for undergrad and graduate students, even if it seems unlikely that you will be eligible for need-based loans.
The information contained in your FAFSA will be used to determine federal loan opportunities or loan limits. This will also include any college-based financial aid and scholarships. Your financial aid office at your school will determine how much federal government loan you can borrow. It will not exceed what you have to pay for school each year.
There are many different types of federal student loans. However, all of them offer a fixed interest rate (not variable), and the rate is determined based on the loan option, not your Credit Score.
Direct Subsidized Loans
Direct Subsidized Loans, also known as subsidized Stafford loans for undergraduate students who have financial need to cover the cost of education at college or in a career-training school, are offered to those students.
Because the US Department of Education pays the interest while your student is in school at least partially, direct loans are slightly more flexible than unsubsidized loans. It also covers the six-month grace period that follows you leaving school. If you qualify, you can also get a deferment. Your loan payments and repayment plans can be affected if interest starts to accrue.
2017 marked the end of federally subsidized low-interest loan Perkins, which was stopped by the government.
Direct Unsubsidized Loans
These loans, also known as unsubsidized loans, can be granted to students who are eligible for undergraduate, graduate, and professional studies. Unsubsidized loans are available for students with financial needs. This is in contrast to direct subsidized loans. The amount of your unsubsidized loan will be determined by the school based on the school’s cost and other financial aid that you may have received.
The federal loan is not subsidized so you will have to pay the interest. This includes the interest accrued while you are in school, during grace periods, or during a deferment/forbearance.
The principal amount on your loan will increase if you do not pay the interest on the loan during school or during the six-month grace period after graduation. You may be able to pay interest while attending school in order to reduce the amount of your loan.
Direct PLUS Loans
These loans can be made to parents of dependent undergraduate students and to graduate or professional students. The interest rates on Parent PLUS loans or Grad PLUS Loans are higher than other federal student loans.
While financial need does not determine eligibility, a credit check is necessary. Additional requirements may be required if you have a poor credit rating or have a questionable credit record. The US Department of Education will be your lender during the term of your loan.
Types and Conditions of Private Student Loans
Federal loans can have borrowing limits that could lead to funding gaps. Private loans may be an option to help pay the remaining tuition and expenses of the academic year.
Students can apply directly to their financial institution for a student loan. Private lenders that specialize in student loans are also available. It is best to shop around to find a lender that offers the lowest interest rate. While you might be able to obtain a quote without having to check your credit, lenders will examine your credit history and determine your interest rate.
A cosigner is someone who has good credit but not established credit. If you have a cosigner with good credit, it can help you get a lower rate.
To refinance your loan, you have the option. This can help you get a lower interest and monthly payment.
Be sure to talk with your lender about your repayment terms, and if they will serve as your loan servicer. Federal loans do not begin repayment until after graduation. If you fall below half-time enrollment, a grace period applies. Private loans might require that you start paying the loan or interest while still in school.
Selecting the Right Education Loan Option
A loan program choice is a big decision that will affect your education and finances for many years. It is important for students to do their homework and speak with relatives who might be willing to assist with educational expenses.
Another great resource is the college counselors who can help you learn more about the different loan types. They can help you decide which loan program suits you best and offer suggestions on other options, such as scholarships
