The FAQ's On Student Loans
How do I choose the right student loan for my child or myself?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. How to get student loans:
- 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.
- 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.
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.
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.
- 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
What's the difference between Federal Student Loans and Private Student Loans?Federal Student Loans -These loans carry fixed interest rates and so usually have a lower total cost than private loans with variable rates. If you need to take out student loans to pay for school, start with federal loans first.
Private Student Loans - After you have exhausted your federal loan options, consider private loans as an alternative funding source. It's important to compare private student loans when shopping to find the best match for your needs.
How do I find student loans?Federal Student Loans - As of July 1, 2010, you will have to go directly through your college to get federal loans as all federal student loans are being moved to the Direct Lending Program.
How do I comparison shop for private loans?Private loans are a source of funding meant to supplement (not replace) borrowing through federal student loans. For many students, federal loans aren't enough to cover the cost of attendance. In this case, private student loans might be an appropriate option.
- Compare Private Student Loans - While federal loans are regulated to have the same rates and fees, private student loans come in different shapes and sizes. So it's important to compare different private student loans across many different variables and features to find the right product for your needs.
- Find low interest student loans - The Annual Percentage Rate ("APR") on a loan factors in all the costs associated with the loan so that you can compare one loan to another on an apples-to-apples basis. But interest rate alone is not an adequate point for comparison. For example, a loan with a high interest rate might look worse than a loan with a lower interest rate, but high fees on the lower-rate loan mean that it might actually be more expensive. The APR would reflect this difference.
- Also compare total cost of loan, or "price" of loan - This takes repayment terms such as interest rates and timeline for repayment into consideration. Your need for $5k today, may cost you considerably more if paid back over the course of 10 years. APR expresses a similar point of comparison, but it's often useful (and sobering) to see how much a loan might cost you over time. Remember - loans with shorter repayment terms will usually cost less than those with longer repayment terms.