STUDENT LOANS

TYPES OF STUDENT LOAN OPTIONS YOU CAN EXPLORE

It is important to understand your options when exploring options to borrow money to contribute to your college education fund. Several types of loans are available for college-bound students who need to fund their college education. Federal student loans and private student loans are the two most common methods college-bound students use for this purpose after availing scholarships and grants. Federal and private student loans have further sub-categories with different features you should be aware of to make better-informed decisions regarding your borrowing options to fund your education.

FEDERAL STUDENT LOAN TYPES

The federal government provides three different types of student loans through the Federal Direct Loan Program:

• Direct Subsidized Loans: These are federal student loans awarded based on financial need.
• Direct Unsubsidized Loans: These federal student loans are not based primarily on financial need. Direct unsubsidized loans are also not credit-based loans, meaning that you will not need a cosigner for them. Your school will be responsible for determining how much you can borrow based on other financial aid you are receiving and the cost of attending the school.
• Direct PLUS Loans: These are federal student loans that are credit-based and unsubsidized that parents and professionals take out.

It is essential to prioritize securing federal student loans before exploring options from private lenders to further supplement your college education fund. Federal student loans have drastically different interest rates, repayment options, and other features that might make them more favorable for you to consider as opposed to private student loans. However, you may still need to supplement your college fund with private student loans.

APPLYING FOR FEDERAL STUDENT LOANS

The federal student loan application process requires filling out and submitting the Free Application for Federal Student Aid, or FAFSA. Completing the FAFSA is crucial to qualify for getting federal student loans. The document essentially proves your need for financial aid for your higher education.

Here are a few things you should know about submitting the FAFSA to become eligible for student loans and other types of financial aid:

• The FAFSA application is entirely free of cost. You are not on the right website if you are asked to pay to submit it.
• You must complete and submit the FAFSA each year you require financial aid for college.
• You must submit the FAFSA as soon as possible after October 1 because some federal financial aid programs are awarded on a first-come-first-serve basis.

You can determine the amount of money in student loans you can borrow when you receive your financial aid offer.

PRIVATE STUDENT LOAN TYPES

Suppose you have explored and availed grants, scholarships, and federal loans but still need more money to fund your college education. In that case, you should consider taking out a private student loan. There are two primary ways you can secure private student loans:

• Private Student Loans: These private student loans are taken by the student. These are credit-based loans, meaning the student might need a cosigner to qualify.
• Parent Loans: These are private loans that parents take out on behalf of their children to help them pay for college education.

Private student loans are credit-based. It means your lender will review your creditworthiness to determine your ability to pay the loan before approving it. Your interest rate may depend on several factors, including your credit history and what loan terms and options you choose. Several loan repayment options are available for some private loans, which may help you lower your total loan cost or interest rate. It is important to remember that regardless of whether you graduate from school, you must repay any student loans. Defaulting on student loans can have a significant negative impact on your creditworthiness.

APPLYING FOR PRIVATE STUDENT LOANS

Since banks and other traditional lenders offer private student loans, you must apply directly to the lender for private student loans. The process might have slight differences, depending on your lender, but the typical process involves the following steps:

• Go to the various lenders’ websites.
• Check and compare the interest rate of the different loans, loan terms, repayment options, and other benefits.
• Once you find the most suitable loan, apply directly on the lender’s website. The lender will ask you to choose the interest rate and repayment option you want to choose.
• Adding a cosigner to increase your chances of getting approved for the private student loan might be a good idea.
• Once you submit your application, the lender will check your creditworthiness and that of the cosigner before telling you its decision.