Student Loan Survivor Kit: Choosing the Right Loans for You

Student loans get a bad rap.

They can be misunderstood in the same way cats are misunderstood.

Cats are good pets. And student loans can be good for you, too.

Yes, there’s financial jargon to comb through, interest rates to worry about, deferment periods to consider, and not much time to make a decision. But, taking out student loans is an important decision that can be the difference between attending college or not.

To help with this choice, we’ve created a list of everything you need to know about student loans before you sign on the dotted line. If you have any questions, please remember to ask an expert, such as the Financial Aid King.

What Exactly Is a Loan & Who Provides It?

loan is borrowed money, but unlike a grant, you must pay the loan back with interest.

For many students, taking out a loan is their best option and their only option. The good news is that people with a bachelor’s degree earn about $32,000 more annually than those with a high school diploma alone.

So, it is possible for you to graduate, secure a job, and pay back your loans all before your cat turns 10. Many students calculate their loan repayments based on a 10-year timeframe, starting from when they graduate.

Student loans are offered through the federal government, state government, or private sources like banks and financial institutions. To apply for a federal loan, you must file the FAFSA before the deadline.

Types of Student Loans

There are both federal student loans and parent loans, which is money loaned by the U.S. Department of Education. There are also private loans you can secure through a bank. Some state governments also provide programs for student loans.

Federal Student Loans

There are four types of federal loans available — Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. For federal loans, you have to begin paying these off six months after you graduate — assuming you take a 10-year repayment plan.

  • A Direct Subsidized Loan is for undergraduate students who require financial assistance to help cover the cost of college. The government pays interest on the loan while you are attending college and for the first six months after graduation.

  • A Direct Unsubsidized Loan is for undergraduate and graduate students and is not based on financial need. You will not need to make a payment on the loan until six months after you graduate. Interest starts to accumulate on this loan immediately, but the student does have the option of paying back interest while in school.

    The amount of money you will borrow depends on whether you are a graduate student, working professional, parent, or undergraduate student. As an undergraduate, the maximum you can borrow each year for direct subsidized and unsubsidized loans is between $5,500 to $12,500. The amount can vary each academic year.

  • A Direct Plus Loan is available to you if you are a parent, grad student, or professional. The maximum amount of money you or your parents can borrow is the total cost of attendance at your college or university minus the total amount of financial assistance received.

  • For a Parent Plus Loan, you can request a deferment while your child is enrolled at least half time. For a Grad Plus Loan, you don’t have to start paying it off until six months after you graduate.

  • A Direct Consolidation Loan is when you combine multiple federal loans into one big loan courtesy of the U.S. Department of Education, meaning you only have to make one payment each month on federal loans. This may help extend the amount of time you have to repay.

Private Student Loans

If you do not secure enough federal or state loans, scholarships, and grants to cover the cost of tuition, private loans are another resource.

Taking out a private loan should be one of your last options since the interest rates can vary significantly.

Check with your bank about their loan options first. Keep in mind, if you are graduating from high school and barely have any credit built up, you will most likely need someone (a parent or guardian) to co-sign a private loan.

Some lenders release the co-signer after three to four years, while others are not so generous. There are also lenders who might provide a better rate if you agree to pay the interest while you are in college — make sure to ask.

How to Pay It Off, Pay It Off

There are different payment plans for student loans.

A standard repayment plan is scheduled so all debt is paid off in 10 years. For subsidized and unsubsidized federal loans, the interest rate is fixed.

Student loans can be forgiven, canceled, or discharged, which means you are no longer required to pay back the loan. For information on those options, consult the Financial Aid King.

Need Help Paying for College?

Overall, it is important to do your homework and read the fine print when signing up for any loan. Just like adopting a cat, you want to make sure you’re making the right decision when choosing loans.

It would be a shame if your loan scratched up all your furniture!

To learn more about how to finance college, read our other blogs related to grants, loans, and scholarships.

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