Last week we started talking about paying for college and student loans. We kicked things off by answering this very important question:
Are student loans the right choice for my situation?
If you missed this post, you can catch up here.
We walked through making this decision and gave you the first step in determining if you should take out student loans… getting your financial situation down on paper. Today, we’re picking up with the next step.
If you have determined that you will indeed need to take out students loans, then the natural question is:
Which Student Loans are Best?
While there are many factors surrounding students loans and which ones are best for your situation, here are a few thoughts you should consider.
Look at Federal Student loans FIRST.
These loans are the most beneficial to you when you are trying to bridge the gap between your personal financial income, scholarships you’ve been awarded and that missing amount that you need. Why should you look at these loans first?
Does not require a co-signer.
Reasonable interest rates.
Flexible repayment options (There are actually 191 ways to re-pay student loans if they are federal).
Build’s the student’s credit.
Doesn’t jeopardize the parent’s savings and retirement.
By and large, federal student loans are your best bet when it comes to deciding to use a loan. But what if that’s still not enough to fill the financial gap?
Look at private education loans SECOND.
Private education loans are non-federal loans issued by a lender, such as a bank or credit union. They have variable interest rates and offer standard repayment terms and options.
This type of loan will be based on your credit score, which you may or may not even have credit yet if you’re entering your freshman year of college. This will require a co-signer, more than likely your parent or guardian. This also puts them on the hook for the loan when it’s time to be repaid and could potentially affect their credit as well.
That’s not to say that all private education loans are bad – these are just things that need to be considered before jumping in. Private education loans can actually be very beneficial when you just need a little extra financial assistance that your federal student loan couldn’t fill. Some benefits include:
Many times the fees will be waived for educational loans like these.
The interest on these loans is tax-deductible.
Interest rate discounts can be earned.
Refinancing options are usually available.
Student loans can be painted out as the enemy a lot of the time, but the reality is that they are sometimes necessary and not all bad! They can be used to build credit, save your parent’s retirement or other savings, and still fund your college dream.
Our last piece of advice:
Begin with the end in mind.
Go ahead and begin to consider how you might be able to pay these loans back. Can you start setting aside a little bit of money each year that you can begin to save up to go towards the loans after graduation? Can that be built into your college budget? What kind of plan can you begin to think about so that you’re not blindsided when it’s time to pay them back?
Loans can be a great tool and aren’t something you should be afraid of. With the right plan and approach, you can be financially successful with student loans. Part of that success comes with a budget though. Stay tuned for next week’s post on creating a college budget!