Getting a college education is expensive. If you’re like most college students, you’ll need financial assistance at some point.
Applying for a student loan can be confusing. Knowing what type of loan you need, where to apply, and how much to borrow is a challenge.
Knowing how to get the most benefit out of your student loan without borrowing too much is key. Here are seven tips to consider if you plan on applying for student loans.
1. Apply for Scholarships First
Students often overlook the abundant scholarships opportunities available for college students. Take a look at what’s out there and what scholarships or grants you might be eligible for.
There are lots of national, local, and school-based scholarships you can apply for online or through the college you attend. The best part is you don’t have to repay scholarships or grants.
The less debt you incur while you go to college, the better for you. Apply for as many scholarships as you can to offset the debt you’ll owe after you graduate.
2. Federal vs Private Loans
If you know you need a student loan, you should apply for a federal loan. Although you may end up needing private loans to pay for college, apply for a federal loan first.
There are several benefits to a federal loan. These government loans have a fixed interest rate, a deferment period, and don’t require a cosigner.
Be sure to fill out a Free Application for Federal Student Aid (FAFSA) form. This may lead to you qualifying for federal grants and low-interest student loans.
You can complete a FAFSA online or request a paper version. Online applications process in three to five days. Paper applications take seven to ten days.
Before rushing to apply for a student loan, take the time to see what federal assistance you may qualify for.
3. Understand Your Grace Period
Most college students struggle with work and classes and don’t have funds available for paying back student loans. Fortunately, federal and private loans don’t require you to pay back your loans right away.
They allow a deferment or grace period that lets you focus on graduating rather than paying back debt. You can postpone your loan repayment for six months after graduation.
Depending on your loan, interest may accrue while you are in school. If you can make small payments while you are in school, you should.
The more you pay now, the less debt you will face down the road.
Some private lenders require you to pay right away. Make sure you understand the terms of your loan, so you don’t fall behind on payments.
4. Understand Fixed vs. Variable Interest Rates
Federal loans have fixed interest rates. This means the rate stays the same until you pay off your loan.
Private lenders set their own interest rates. People with excellent credit get the lowest rates. Private lenders may offer a fixed rate or a variable rate on your student loan.
A variable interest rate may increase over time. If your loan repayment spans 10 years or more, this can add up.
If you plan to repay your loan in a shorter amount of time, a variable rate may be a good option.
5. Plan Your Classes
If you have a major in mind, you have a good idea of what classes you need in order to graduate. Planning your schedule and mapping out the costs of your classes will help you budget your money.
Having a good idea of the money you need to complete your courses will help you determine how much to borrow. The goal is to borrow only what you need.
Of course, your plans and even your major can change, and you may need to reevaluate your plan later. The best plan is to keep your loan amounts close to what you need for classes, books, and basic living expenses.
6. Research Deferment and Forbearance
Student loans vary in policy, but lenders may allow breaks in payment if you have a specific need.
Forbearance allows you to take a break in loan payments or reduce the payment amount for a specific amount of time. With forbearance, interest still accrues.
Deferment allows you to stop payments on the principal and interest of your loan. Lenders will allow this for a number of reasons.
If you have a Direct Subsidized Loan, a Federal Perkins Loan, or a Federal Stafford Loan, the government may subsidize your loan while in deferment.
Discuss these options with your lender before you borrow. The more you understand your loan and what’s expected of you, the better.
7. Consider Refinancing and Consolidation
Depending on your situation after graduation, you may want to lower your monthly student loan payments. Two available options include refinancing or consolidating your loan.
Consolidating helps you combine all your loans into one payment. The interest rate is usually an average of the interest rates of the consolidated loans.
Debt consolidation simplifies your loan payments but doesn’t always reduce your debt load.
When you refinance, you take out a new loan at a lower interest rate to help pay off existing debts. You make a single payment each month on your new loan.
A lower interest rate is always a good idea and can help you pay down your debt faster. You’ll need to do a little research and talk to a lending professional to see which option works best for you.
Applying for Student Loans
No one wants to take out a student loan, but, for many, it is a necessary step towards graduation and a successful career. Student loans are common, and most students end up applying for student loans at some point during their college years.
The best advice is to do your homework and understand the terms of your loan and what the lender expects from you as well.
For more information on student loans or debt consolidation, contact us today.