Student Loans

How do I choose the right student loan for me?

You have options when it comes to student loans, but some options are better than others. Always start with federal loans first. They have low, fixed interest rates and are government-backed loans offered directly through your school. Now if you still don't have enough to cover college costs, private student loans can be a good option to fill the gap. However, keep in mind, that while they might have higher borrowing limits and sometimes lower interest rates than some Federal Loans, their interest rates are variable not fixed, which means the rates can go up and these loans usually require a cosigner. Private student loans come in all different shapes and sizes. They vary in interest rates, monthly payments, total costs and other terms. To find the best one, it's important to compare your loan options. This is where SimpleTuition's loan comparison tool can help. All in one place, you can search, compare and apply for the best loan for you. So, if you need a private student loan, get started with SimpleTuition now.

Students can use student loans to pay their educational expenses. These expenses generally include tuition fee, living expenses, books and other supplies needed for college. With the rise in inflation, college education has become more expensive and students are required to take out multiple loans in order to pay for college. Loans are very convenient since they are disbursed more easily as compared to other sources of financial aid such as scholarships and grants. However, unlike other sources, loans have to be repaid to the administering authority after the student finishes his/her studies. Most loans have a grace period. This is a time limit, usually up to six months or more after the student graduates in which he/she is not liable to pay back anything. This is set in consideration of the time a student may need to find an employment and reasonably settle down after graduation.

Student loans may be broadly categorized into federal and private student loans.

Private Student Loans
Private loans are administered by privately owned financial institutions such as banks. These usually have higher rates of interest applicable on them but are available more freely. They also have a higher or no limit on the maximum amount that can be borrowed. Their terms and conditions may also be less rigid. Despite these benefits, most universities advise students to utilize private loans only as a last resort – for instance usually federal loans are not enough to pay the entire cost of education. This advice is mainly based on the fact that students will have to pay a much higher amount of interest and lending companies may have terms and conditions that might not be suitable for the average student.

Federal Student Loans
Federal student loans are loans that are administered by the federal government or specifically the Department of Education. These loans have fixed interest rates and a maximum limit on how much can be borrowed at a time but are mostly given without consideration of an applicant’s credit history or other financial issues. Federal loans are divided into subsidized and unsubsidized. In case of subsidized loans for students, the government pays off the interest for the time period during which the borrower is studying and usually through the grace period. On the other hand, students who have taken out an unsubsidized loan are required to pay back all the interest accrued during their education and eventually end up paying a total amount that is much higher than subsidized loans.

To apply for any federal student loan, the student first has to fill out the Free Application for Federal Student Aid (FAFSA). This application assesses a student’s financial worth and estimates the amount of aid he/she may be eligible for.

Types of Federal Student Loans

Stafford Loan
Stafford loans are available as both subsidized and unsubsidized loans. These are given to students who effectively demonstrate financial need at the time of their application. Stafford loans have a maximum aggregate limit, student may not be able to borrow above this limit, at least not until part of the previous loan is paid back. These loans have a grace period of six months.

Federal Perkins Loan
Federal Perkins Loans are also need-based and unlike Stafford loans, these have a nine month grace period. Perkins loans are subsidized loans so that the student only pays the loan for the repayment period.

Borrowers may be eligible for complete or partial cancellation of their Perkins loans if they find employment as teachers in certain public and low-income schools as well as Peace Corps volunteers.

PLUS
Parent Loans for Undergraduate Students (PLUS) are low interest loans that are federally administered and given to parents of students studying at least part time at an undergraduate program. This loan is not based on financial need although parents applying for it may have to undergo a credit check. Also, this type of loan does not have a grace period and repayment starts right after a student finishes his/her undergraduate studies.

Student Loan Interest Rates
Interest rates vary from loan to loan. The lowest interest rates are offered by the Perkins loans but very few loans are available to students in this category. Other than that, as mentioned above, federal loans usually have lower interest rates as compared to private loans.

Loan Repayment Options for Students
While private loans may offer customized repayment plans, decided on a case to case basis, federal loans have many fixed repayment plans that students may choose from. These are discussed below.

Standard Repayment Plan
This plan is based on ten year repayment tenure. Students have to pay a fixed amount of at least $50 every month as part of this plan depending on their total amount of loan and the level at which they have taken it (graduate/ undergraduate). Since the total time period for this repayment plan is lower than other plans, less interest accrues over this period and thus the student ends up paying less with longer repayment plans.

Graduated Repayment Plan
Like the standard repayment plan, the graduated repayment plan also includes completion of repayment within ten years. The difference is that while the former has a fixed repayment amount throughout the repayment period, the Graduated Repayment Plan has relatively higher monthly payments. This is helpful for students who start with low earnings but move on to better paying opportunities.

Extended Repayment Plan
As the name suggests, this plan offers more time to pay off your student loans. In fact, such a repayment plan may be spread out over as long as twenty five years. It may further be categorized as fixed or graduated. Since the time period is ‘extended’ more interest accrues over this time period and the student may end up paying more in total.

Income Based Repayment (IBR) Plan
Students who can demonstrate partial financial hardship are eligible for the IBR Plan. Using this repayment plan, loans for students are paid back according to the income of the borrower. This means that students start off by paying a very low amount which increases with their income.

Your Personal Loan Checklist
If you are looking for a loan to help finance your college education, make sure you know the basics. Keep the following things on your check list:

1. Have a reliable cosigner at hand since some loans may require one (preferably a financially sound or at least responsible individual)

2. Be prepared for a credit check, especially if you are applying for a private loan or you are a parent applying for a PLUS loan. Make sure all your credit payments are in time to have a solid credit score.

3. Once you have the loan, keep in touch with your loan servicer. Stay abreast about changing interest rates and any loan cancellation or reduction opportunities that you may be eligible for.

Our website offers a reliable comparison tool that you can utilize to compare between the different loans available. This will provide you with many private loans for students and also a comparison between them to help you choose the one that you find most suitable.