College classes are just around the corner, or they could have already started in some parts of the country. It’s a time of excitement and anticipation, mixed in with perhaps a little fear about how your family is going to pay for it all. One option many families consider to help cover the gap between financial aid and available disposable income is borrowing money through student loans.
Student loans do offer a tremendous benefit, but they also come with certain responsibilities. Most importantly, they have to be paid back at some point. The key is to make paying back the loans as painless as possible. That’s why it is important to do your research and learn about the different types of student loan opportunities. You might have heard that you should first maximize your federal student loans, and then apply for private student loans to cover any differences. While this is certainly true for most families, how do you know if your student even qualifies for help? Here are a few key factors to consider:
• Which students can qualify for student loans? Federal student loans are available to just about every college student who needs financial help. No credit check or co-signer are required. Private student loans, on the other hand, may require both a credit check and a co-signer depending on the loan issuer.
• Which students qualify for lower student loan interest rates? Most federal student loans have lower, fixed interest rates than private options. In addition, some students might be able to have their interest deferred during their college years if they qualify financially for a subsidized federal loan. For unsubsidized federal loans and private loans, interest usually continues to accrue during the college years, but payment will likely be deferred until after graduation.
• Which students qualify for income-based repayment options? With federal student loans there are a variety of income-based, graduated and extended-term repayment plans. Students may also qualify for forgiveness of their remaining loan balance if they agree to work in certain job fields for a specified amount of time while making regular loan payments. Each private student loan lender has its own repayment options, and will probably not offer loan forgiveness opportunities.
• Which loans qualify for loan consolidation? Only federal student loans can be consolidated in a Direct Consolidation Loan. This makes it easier to keep track of monthly payments. Private student loans cannot be included in this amount.
Although your student might not qualify for financial aid through grants and scholarship opportunities, most are eligible for some type of federal student loan. The most important things to remember before borrowing are to do your research first, know your options and try to borrow the least amount possible. Even though more money might be available, try to borrow less and have you student adapt to living on a tight budget during the college year.