Obtaining a Student Loan

| January 2, 2012

With the rising cost of college tuition in the United States many students are finding that they need to take out student loans to finance their higher education. Student loans fall into two categories: federal student loans and private student loans. Each category has several different programs to best fit a student’s needs.

Federal student loans tend to have better terms for the student. In order to see what federal loans a student is eligible for they must file a Free Application for Federal Student Aid (FAFSA) with the U.S. Department of Education. The FAFSA is easy to fill out, and it can be done quickly online.

Subsidized Stafford Loan:
This type of federal student loan is based on financial need, as determined by the information provided on the FAFSA form. Interest does not accrue while the student is still in school, and there is a 6 month grace period on repayment following graduation. A student must be enrolled at least half-time in an accredited school to qualify for this loan.

Unsubsidized Stafford Loan:
This type of federal student loan is not need-based; almost all students qualify. Interest begins accruing upon disbursement of the loan amount. Students are responsible for repayment of principal and interest following graduation.

Federal Perkins Loan:
This type of federal student loan is reserved for those students with the greatest financial need, as determined by the information provided on the FAFSA form. The Perkins Loan shares many of the same characteristics as a subsidized Stafford Loan, with the added benefits of no fees, and a longer grace period before repayment must begin.

Federal student loans do have a yearly borrowing limit; those students in more expensive schools may need to use private student loans to cover the remaining cost of a year of college. Private student loans are offered through institutions such as banks or credit unions. Obtaining a private student loan is a similar process to other private loans- a bank may look at a student’s credit history and credit score to determine if they are a good candidate for a loan. Students with poor or no credit history may require a cosigner.

Having a college education is incredibly important in our current job market. Using loan programs to finance a degree is a wise investment in a student’s future. But student’s should do their research to make sure that they are using the student loan program that best fits their current financial needs while also providing good terms after graduation.

Category: Student Loan

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