Student Loans

The cost of tuition at a public four-year university has risen by 213% since 1988. Coinciding with this rise, college has become more and more essential to getting a well-paying job.

On average, college graduates make $20,000 more per year than individuals who only have a high school degree. Simply put, it is more important for students to go to college than ever before. At the same time, it has gotten incredibly expensive. Combined with the fact that many students do not have the opportunity to work full-time while also taking classes, the chances are high that you will need to take out a student loan in order to pay for your college experience.

When Should You Get A Student Loan?

Taking out a loan always comes with a certain amount of risk, because you will be forced to pay interest on your loan. Here are a few questions to ask yourself before taking out a loan:

  • Do you know what you want to do with your degree? Getting real-world working experience before attending college can help you find your focus, which is cheaper than finding yourself in college and potentially having to spend money on classes you end up not needing.
  • Can you save for college before attending? If your parents or guardians are taking care of your living expenses, working a year or two full-time can help you save up money for college. Using this money instead of a loan can allow you to avoid spending money on interest.
  • Will you be able to work part-time or full-time while attending college? Working during college is difficult, but taking a low course load while working can allow you to pay for your tuition while going to college.

You may still need to borrow a loan after answering these questions. However, it is important to think through your loan before applying for one. Though it can be difficult to pay the loan off, it can provide enough benefits to be worth it. You simply need to understand the benefits and drawbacks of applying for a student loan.

How to Get a Student Loan

Your school’s financial aid office is the best resource available for helping you understand the options you have to pay for college. The first step is completing a FAFSA (Free Application for Federal Student Aid) form. FAFSA is administered through the United States Department of Education. Many, if not most, students typically obtain their educational loans through the federal government, which offers more desirable interest rates and terms than private institutions, as described in the next section.

It is recommended that you fill this form out as soon as possible, as there are different types of aid that you can get. The sooner you submit the form, the sooner you can apply to different types of assistance before their deadlines. Once you have submitted the form, it will take up to a few weeks for the information to be processed. Keep in mind that the Department of Education approves students for different types of loans based on financial needs. Additionally, you may qualify for different types of loans based on the level of education you are seeking. For instance, students seeking a bachelor’s degree may have access to different kinds of student loans than those seeking a master’s degree.

When you fill out your FAFSA, you will be asked to select all the schools you intend to apply to. The reason for this is so that the Department of Education can inform the schools whether you are approved for a federal loan and the school can be informed of how you will be paying for your education. After you have been approved for a federal student loan, you should be contacted by your school’s financial aid office. While you are attending college or university, your school’s financial aid office will be your point of contact.

Private loans are also available if you do not qualify for federal student loans or if you require additional funds to pay for your education. Private loans are issued through banks and other private lending institutions. Each one of these will have its own procedures for applying for a loan. However, the process is often similar to applying for a personal loan.

Which Student Loan Is Right For You?

There are two different types of institutions that offer student loans: public institutions and private institutions. Public student loans are the most sought-after. Provided by the federal government, these loans come with a large number of potential benefits. Fixed interest rates, unemployment deferment, subsidized interest payments while you are still at school, and even loan forgiveness can be available, depending on your loan. Here are the most common loans that are available:

  • Perkins Loans are the gold standard of loans, as they do not have many of the common loan fees, they offer subsidized interest rates while you are at school and their interest rate is low at 5%. These are the hardest loans to get, as the government designed them to be given only to students with the greatest fiscal need.
  • Stafford Loans offer more money than the Perkins Loans, but they come with more fees and do not always offer subsidized interest rates.
  • PLUS Loans have higher interest rates and origination fees than other student loans, but they can be used by students whose other loans do not pay for the entirety of their tuition. These loans may require payments before you graduate.

The biggest problem with many public loans is that they do not cover all of the expenses a student may need to pay for. They might pay for only a portion of the student’s tuition, or the student may need money to pay for room and board or supplies. If you do not want to pay for these expenses with a PLUS Loan, you will want a private loan. These loans do not necessarily have a fixed interest rate, and they will not offer perks like loan forgiveness. As well, they require a credit check before you can qualify, so you may need to have a parent co-sign with you if you do not sufficient credit history. You can, however, get one without having to complete a FAFSA form.

Avoiding Student Loan Scams

When dealing with a public student loan, it is best to speak directly with a government representative. There are a number of businesses out there that offer ways to get out of or mitigate your student loan payments, but these promises are not to be trusted. These promises are usually made by scammers who want to get your money.

These scammers use what are called high-pressure sales tactics. They tell you that you need to take advantage of the opportunity now or they will not be able to help you. They will say you need to send them money before they can help you, but it is actually against the law to ask for money before services are rendered. If they say they can help you with your loan before looking at the particulars of your case, walk away. It is impossible to truthfully promise help before they know what exactly your loan situation is.

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