Financing Your Education: A Basic Guide to Student Loans

Financing your education can quickly become one of the first obstacles of your educational future. Most people rely on student loans for the bulk of their financial need but understanding student loans and what to look for can quickly get confusing. Use this guide and learn how to pay for your education without getting in over your head.

Federal vs. Private Loans

Stafford Loans

Stafford loans are loans backed by the government. These loans typically have much better interest rates, need no credit approval, and are easy enough to qualify for. There are two main types: subsidized and unsubsidized. Subsidized loans are the preferred loan type because the government pays the interest while you are in deferment. Unsubsidized loans add interest that you will need to pay back. Which type you qualify for is determined by your income.

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The amounts you can borrow depend on several factors. One factor is whether you are considered dependent or independent. To qualify as independent, and receive the highest amount of funding, you must meet one of the following criteria:

Be at least 24 years old Married A graduate student A veteran or member of the armed forces A ward of the state or orphan Have at least one qualifying dependent

If you meet these criteria, you can borrow up to a maximum of $12,500 per year as an undergraduate or $20,500 as a graduate student. There are also caps on lifetime maximums as well, $57,500 for undergraduates and $138,500 for graduate students.

PLUS Loans

PLUS loans are supplemental loans provided by the federal government but are different from Stafford loans. PLUS loans have a higher interest rate typically but the rate is fixed. You do need to have a good credit history to get approved for PLUS loans but you may apply with a co-signer to better your chances of being approved. PLUS loans are usually borrowed by the parents of students to help fund their child's education and typically do not qualify for in-school deferment unless the borrower is in school as well.

Private Loans

Private loans have varying requirements to qualify depending on the institution. Most times private loans have higher interest rates and much more stringent requirements to get approved. Each bank determines what amount they are willing to approve and the fees that apply. They often do not qualify for any type of consolidation and base deferments on the lending practices of the institution you're doing business with. It is important to read through all the guidelines and agreements being made when applying for a private loan. Be very thorough and ask any questions you may have in advance. Use a payment calculator to figure out how the interest will affect you for the long-term. Compound interest can get out of hand quickly with private loans so double-check your numbers and make sure you understand what you are agreeing to.

Helpful Tips

Always borrow the lowest amount needed to fund your education Pay interest off if possible before it compounds Stick with subsidized Stafford loans to keep your balance in check Be very wary of interest, especially compound interest Know the policies for hardship deferments Look for other funding sources first Plan for repayment early to know what to expect Keep in touch with your loan companies to avoid problems Know your repayment options Speak with a professional in advance Do your homework before signing on the dotted line

Student loans are a necessary evil when going back to school. Knowing what you're getting in to can make the process much less painful in the long run. Make sure to avoid the common mistakes and to keep your debt in line.

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