Need Help For College Funds? Let’s Talk About Student Loans
Students preparing for college need to think about so many aspects. They have to do well in their college applications and they also need to find a way to fund their college education. Most students and parents take out student loans for this purpose. When you learn that annual college tuition and fees can go beyond $25,000 at public colleges and $40,000 at private ones, it’s not a surprise why many need the help of loans.
If you’re thinking about how to get more funds for college, some options include a savings plan, scholarships, grants, income (yours or your parents’), and student loans. There are two main categories for student loans – federal student loans and private student loans.
In this article, we’ll talk about how you can get student loans and whether you should take out a loan from the federal government, a private lender, or both.
Federal Student Loan Options
Federal student loans are funded by the government. The benefits offered by federal student loans include the lack of a credit check requirement, competitive interest rates, and multiple forms of assistance for borrowers with financial difficulties (loan cancellation, forbearance, etc.). But with federal student loans, you get stricter eligibility requirements and higher origination fees compared to private loans. Also, most federal student loans cover only a portion of the admission costs.
Federal student loans can be further divided into three types
1. Direct Unsubsidized
A direct unsubsidized loan is an option for both undergraduate and graduate students. These are low-cost loans with a fixed interest rate and often flexible repayment terms. Direct Unsubsidized loans do not qualify based on financial need so even students from well-off families can get this loan. The interest rate for undergraduate students is 3.73% while the rate for graduate and professional degree students is 5.28%. The annual loan amount can reach $20,500 which can vary based on dependency status and grade level.
2. Direct Subsidized
Offered to undergraduate students who need financial help, the interest rate for a direct subsidized loan was 3.73% in 2021-2022 with annual loan amounts up to $5,500 depending on the borrower’s dependency status and grade level.
3. Direct PLUS
PLUS loans are available to graduate students, professional degree students, and parents who will be paying for a dependent child’s undergraduate degree. Financial need is not necessary to qualify for the loan but the borrower should have a good credit score. The maximum loan amount is the cost of attending college minus other financial aid received. Interest rates for PLUS loans are at 6.28%.
Private Student Loan Options
Private student loans are taken from banks, online lenders, credit unions, and other private lenders. Private loans can be used to pay for undergraduate and graduate education as well as professional studies and career training. These typically cover the total admission costs which include tuition, fees, room and board, transportation, books, and supplies.
A lot of private lenders for student loans will offer fixed-rate and variable-rate loans. Fixed-rate loans range from 30495 to 12.9% while variable-rate loans range from 1.045 to 12.4%. An average student loan falls into the 5 to 8 percent range depending on the borrower and/or cosigner’s credit score. Private student loans have no application fees, origination fees, or prepayment fees. The repayment terms can be set to 5-15 or 20 years.
Lenders also offer different repayment options to students when they are still in school. This is followed by a 6 to 12-month grace period after their graduation after which they would need to make full payment on principal and interest. Below is a list of repayment options for students:
1. Full payment on principal and interest – Allows the borrower to save on the total loan cost.
2. Pay interest only – Provides a balance between lower monthly costs while in school and total loan costs.
3. Fixed monthly payments (average $25) – Reduce accrued interest while the borrower is in school
4. No payments during school – Increase the total cost of the loan but allows the borrower to free up cash for a short period.
An important consideration for private student loans is the availability of options when it comes to a co-signer. Usually, a cosigner is a borrower or student’s parent, but it can also be any immediate family member, a family friend, or another person that they trust who has a strong credit score. The lender will use the cosigner’s credit score to evaluate the loan application which gives the borrower a higher chance of getting better rates. Some private lenders can release a cosigner after they have made up to 24 consecutive on-time payments per month.
Choosing Between Federal and Private Student Loans
When you are trying to determine how to get funds for your college education, you should know that you can take advantage of several options and programs. If you have a family member with an excellent credit score, you might get your tuition fees completely funded by a private loan with low interest. However, many students and parents find it wise to apply for both private and federal student loans.
As we’ve described earlier, federal loans can help new students get started with their college education. Even those who are not categorized as financially incapable can be eligible for an unsubsidized loan which usually has interest rates ranging from 3.73 to 5.28 percent. A direct unsubsidized loan can be used to pay for the first $20,000 of college costs annually. Then, you can consider a direct PLUS loan or one from a private lender to cover the unsettled amount.
Bottom line
In this article, we show that there are several options for students who want to get a student loan. You need to know or at least estimate how much you will pay annually for tuition and other expenses. You can also calculate how much you can pay out of pocket. If you are eligible for scholarships, add that to your calculations as well. Then, you can consider whether you want to take out a federal loan, a private loan, or both.
