If you're looking for ways to finance your graduate or undergraduate education, it pays to shop around for student loans. There are so many different kinds available to everyone in various situations – there's no excuse for paying too much money or getting the wrong loan!
The best place to start is with Federal loans. Almost all students are eligible to receive some form of Federal aid, regardless of credit rating or their family’s financial circumstances. The loan amounts can be fairly modest, but they are invaluable for supplementing grants, scholarships or contributions made by another party or your own wallet. And, they offer a grace period of six months after graduation in most cases, and sometimes loans without interest accrual during school can be made to those with greater financial needs.
Generally speaking, Stafford Loans and Perkins Loans are best to explore first, because they offer the safety of being guaranteed by the U.S. Department of Education, have smooth application procedures, and offer very competitive loan deferment and forgiveness situations, should the need arise.
Federal PLUS Loans are – on average – the next cheapest way to bridge any gaps between your tuition and other Federal loans, but they are only available directly to parents of undergraduate students and borrowers in a graduate program. Also, they have no grace period after graduation or if you fall below half-time enrollment. One additional thing to note about PLUS loans: if you own a home, you can probably find a home equity loan at a fixed, comparable rate but most experts recommend the PLUS because it doesn’t require collateral. The rate on the PLUS loan depends on the school you attend.
Depending on your school of choice, you might qualify for a rate reduction by instituting direct payments to your loan through a participating bank. Also, be sure to check if you qualify for a discount on the up-front fee for a Stafford Loan.
Private loans can offer advantages to certain borrowers. They often offer much higher loan limits than the government, and usually a 6-12 month grace period after graduation before repayment begins. Also, because private loans are based on the credit history of the borrower, someone with good credit (or whose family has good credit) can receive lower rates and a smaller origination fee charge. Additionally, money paid toward interest is now tax deductible.
But because there are so many terms and they vary from lender to lender, it's wise to examine all the terms of a loan, not just the rates. For instance, a private lender may offer a discount for on-time payments or automatic account debiting, but it may not have good options on deferments (the time between leaving school and starting repayment) and forbearances (time whereby payments can be temporarily reduced due to financial or medical hardships).
Taking out a student loan is the best investment you can make in yourself if you’re not able to pay for your education through other means. But this doesn't mean you should have to pay any more than is necessary, especially if you have good credit. Take as much time as possible to research all your loan options, and shop around – a lender's business depends on you as much as you depend on them!
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