Finding and Choosing the Right Student Loan for Your Child
Most college financial aid packages include student loans, all of which must be repaid with interest. Students these days are saddled with more debt than any previous generation, which makes finding the right student loans that much more important. With so many options, choosing a lender can be a daunting task. However, if you understand a few basics, finding the right student loan can be relatively painless. Read on below for step by step tips to finding the right loan for your child's college funding needs.
1) Fill out the Free Application for Federal Student Aid (or FAFSA).
This is a must. Without it, your student won't have access to federal student loans – many of which are not based on need or income. Before starting on a loan search, make sure your child's FAFSA is complete. You'll need the previous year's tax information to complete the FAFSA, so get this done as soon as possible in January.
2) ALWAYS use Federal Loans First, Such as the Perkins, Stafford, and PLUS Loans.
They carry lower, fixed interest rates and often have better terms than private (or alternative) loans.
Know the difference between the types of loans in your financial aid award.
- Subsidized Stafford Loans: the government pays interest while you are in school
- Unsubsidized Stafford Loans: you pay interest while you are in school
- PLUS loans: loans for graduate students and parents of undergraduate students
- Private student loans: loans from banks or other non-government sources, often with competitive rates.
3) If you Need to Use Private Student Loans, Consider All of the Costs.
Private loans can have origination fees, different ways of compounding interest, and higher interest rates or higher APRs. Comparing private loans is the best way to find a loan that matches your unique financial needs and situation.
Know your Credit Score.
The lower your score, the higher your rate will likely be on a private loan. If your rating is poor or non-existent, you will need a co-signer. Fees and penalties can be higher than with government-backed or federal loans and your repayment terms may not be as favorable.
4) Investigate options carefully.
Consider the following:
- Total cost of the loan (after all of the interest and fees have accumulated)
- APR or annual percentage rate of interest
- Borrower rewards or benefits (such as cash back or interest rate reductions if you make payments on time)
- The lender's customer service record
Remember to borrow as little as possible, because every dollar you don't have to borrow today will save you a considerable amount of money once you start repaying your loans with interest.
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