Understanding College Loans and Which One is Right for You

The last time we were together, we discussed the basic expenses associated with higher ed. We also briefly touched upon the idea of financial assistance in the form of student loans. Let’s dive a little deeper. If you plan on furthering your education by attending college then you may want to consider taking out a loan. But before you do, it’s a good idea to learn the different types of student loans and how they work in order to determine the right one for you.

Federal student loans

The great thing about federal loans is that they provide a lot more flexibility than any other loan, and credit history is not a qualifying factor. These loans also have fixed rates, as well as more options in regard to the interest accrued. Additionally, federal loans can be put into deferment or forbearance should you ever experience financial hardship. Types of federal student loans include:

• Direct subsidized loans

Mainly for students in financial need. The interest is paid by the government while you’re in school or during your grace period. You also have the option to defer payments.

• Direct unsubsidized loans

While you don’t need to show financial hardship to qualify, there isn’t much flexibility when it comes to the interest. These loans are also available to both undergrads and graduate students.

Direct PLUS loans

Available to both graduate students and parents when options for financial aid have been expended. However, be aware that PLUS loans have much higher interest rates than most federal loans and require a credit check.

Private loans

Considered as a last option, these loans are based off income and a good credit score. A co-signer can help; but remember they’ll be responsible if you cannot pay it back. Furthermore, there is no deferment or forbearance option should you ever need temporary financial relief.

Student loans are a great option for many students who want to further their education but lack the means to do so. However, keep in mind that borrowing money also means paying back interest. You do not have to pay Direct loans back while in school or until six months after graduation, while PLUS loans enter repayment as soon as they are dispersed, unless a deferment is issued. On the other hand, Private loans have their own set of rules.

In need of financial aid?

To apply for federal loans, students must complete the FAFSA. This can be done online at www.fafsa.gov or by calling 1-800-4-FED-AID to request a hardcopy. A good time to complete the FAFSA is as soon as it becomes available to you.