Understanding Student Loans
Federal versus Private Loans
Perhaps the first distinction to make between Federal and Private loans is that private loans do not come as part of your financial aid package. Private loans can be taken out from a bank or credit union to help cover any remaining costs of college not covered by financial aid. Federal loans typically will also have lower interest rates, but are also usually for less money than a private loan. Federal loans will have fixed interests rates, while some private loans have variable interest rates that can get very high. Federal loans oftentimes have more appealing repayment plans that are based on factors such as income level. For more information on the differences between Federal and Private loans, read over this resource from the Federal Student Aid website.
Types of Federal Loans
Direct Subsidized - A subsidized loan means that while you are in college, interest is paid for you by the government. However, once you graduate or are no longer enrolled full-time, you will be responsible for paying interest and the principal amount of the loan.
Direct Unsubsidized - An unsubsidized loan means that interest will start to grow on your loan as soon as the funds have been dispersed. You can choose to make interest payments during college on this loan, or let the interest accrue. However, if the interest continues to grow, you could possibly end up paying interest on your interest.
Parent PLUS - The parent PLUS loan is a loan that your parents can get and it can cover up to the total of your out of pocket costs for a college. There is a credit check for this loan, however; if the parent is not eligible to receive a PLUS loan, then the student can receive more funds in their unsubsidized loan. While payment does begin once the loan has been dispersed, the payments can be deferred till after you are no longer a student. Interest will still accrue on the loan during this time similar to the unsubsidized loan.
Where to get an educational loan
Apart from Federal loans, you may want or need to get a private loan to help cover the remaining costs of college. It is very important that you and your family research the different lender options. It is best if you and your family compare different educational loan options, interest rates, and other terms from various lenders. As most private loans are dependent upon credit scores, there may be some fluctuation in interest rates between lenders, or even between parents. Check with your family's bank or credit union that you have an existing history with to see if there are any reduced rate available through that lender. Check online with local banks such as Adams County National Bank, PNC, Susquehanna, or other lenders to see what they offer for educational loans.
For a general overview on what type of loan you should get or at least where to start searching for your loan, check out the Best Student Loans in 2015. This great resource is provided by The Simple Dollar, a financial advising website. Also be sure to watch The Basics of Paying for College video which can be found on the media page. There are also many great resources to be found on the Federal Student Aid page on Loans.
Paying Back Your Loan
When it comes time to pay for your loan or loans, there are several factors to keep in mind:
Consolidation: If you have multiple federal or private loans (from the same lender), it could be beneficial for you to consolidate these loans into one loan. That way, you will not have to make many smaller payments to several different loans. By consolidating your loans, you only make one payment. The Simple Dollar offers a Loan Consolidation Guide that helps explain how loan consolidation works, and what the benefits of consolidating your loans are. This very helpful guide also offers advice on the best way to pay back multiple student loans in the fastest and easiest ways possible.
Loan Repayment Calculators: Here you can utilize some loan repayment calculators to see how you will be able to handle paying off your loans once you are done with college. This is very important in understanding how much debt you will have from your college loans, and how long it will take to pay back your loans.
- Student Loan Hero Calculator
Payment Plans: As you can see here from the Federal Student Aid website, there are many different repayment plans available to you. When you complete your loan exit counseling at the end of college, you will be able to select the payment plan that is most appropriate for you. Private loans may also have different repayment plans available, but the options will be much more limited.
Loan Forgiveness Options: With Federal loans, there are some ways in which all or part of a loan may be forgiven. For instance, if you become a teacher or work in the public service sector for at least 5 years, all or part of your loan will be forgiven. For more information on what qualifies for loan forgiveness, review the information found on the Forgiveness, Cancellation, and Discharge page of the Federal Student Aid website.