Individuals who have just finished high school, or are pursuing a Bachelor’s degree, or are thinking of doing their Masters after working for many years, can opt for a student loan to help cover the expenses that they may not be able to afford by on their own.
Having poor credit or no credit does not pose any problems with regards to availing a student loan. Most students tend to borrow funds for educational purposes, and hence lenders do not penalize them for not starting their credit as yet.
Students need to remember that student loans are a financial transaction and that it comes with a binding contract between the lender and the borrower (students). When you take out a student loan for education, it is advisable to borrow only that amount that is need for education and nothing above it. This is because students will have to pay back the loan along with applicable interest in the future. It is also important to note that you have to research and find out all aspects of student loans offered to you, such as the manner in which interest accrues on the loan, the availability of grace period post graduation, and the different forms of repayment options that will be available after graduation, etc.
Types of Student Loans
The two types of student loans are federal loans and private loans.Federal Student Loans
- The US Department of Education funds federal student loan programs
- Students need to show financial need in order to qualify for federal loan
- Interest rates are fixed and range from a little over 5 percent for undergraduate courses to over 6.5 percent for graduate studies.
- The FAFSA (Free Application for Federal Student Aid) determines the eligibility
- They are offered by private lenders, credit unions, banks and other lending financial institutions
- The loans are dependent on a person’s creditworthiness, i.e., the better the credit score, the lower will be the interest rate
- Most private loans come with variable/adjustable interest rate, but private student loans with fixed interest rate are also available
- APRs may begin from 3 percent, but it is advisable for students to opt for a co-signer to get the best terms and rates.
Students can take private loans to meet the difference between the loan passed by federal programs and the total cost of education. This may be varied things like cost of books, housing, fees, cost of tuition, and other education-related expenses.Responsible burrowing
Education is often the second biggest life expense after buying a house. Hence, it is vital for students to shop around, search extensively, and find a student loan that is right to your unique requirements. Since student loans can be a huge sum of money, even a minor different in the terms and interest rate can help save thousands of dollars over the course of the loan.
Presented below are some steps that you may take while applying for a student loan:
- Find out the total cost of education, including tuition fees, housing, books, supplies, etc.
- Calculate your savings, contribution from family, and add any scholarships you may have received
- Fill out the FAFSA form
- Research and compare different student loans offered by different lenders
- After you find the right one, apply along with required documents like driver’s license, social security number (SSN), current income tax return of parents (if needed), latest income tax return, statements concerning business activity, bank statements, and legal documents of residency (if applicable).
- The lender will revert in around two weeks. Once you get approved, thoroughly read all the student loan documents to confirm whether the terms and rates are as per your expectation, sign on the dotted line, get the loan certified by the school, and get the loan disbursed to you as a lump sum or in many smaller amounts over a period of time.