How to Take Out a Student Loan
It’s no secret that college is expensive. If you’re not careful, you could end up with a mountain of debt that will take years to pay off. Taking out a student loan is one way to help pay for college, but it’s not a decision to be taken lightly. Here’s what you need to know about how to take out a student loan.
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Taking out a student loan is a big decision. You’re borrowing money that you’ll have to pay back with interest, and it will affect your finances for years to come.
Before you take out a loan, it’s important to understand the different types of loans available and the pros and cons of each. This guide will help you make an informed decision about taking out a student loan.
There are two main types of student loans: federal loans and private loans.
Federal student loans are provided by the government and have fixed interest rates. They are available to students regardless of their financial need. The most common type of federal loan is the Stafford Loan, which can be either subsidized or unsubsidized.
Subsidized Stafford Loans are need-based loans, meaning that the government pays the interest while you are in school. Unsubsidized Stafford Loans are not based on financial need, so the borrower is responsible for all interest payments.
Other types of federal loans include Perkins Loans, which are only available to students with exceptional financial need, and PLUS Loans, which can be taken out by parents or graduate students.
Private student loans are provided by banks and other financial institutions. They usually have variable interest rates that can be higher than federal loan rates. Private loans are not based on financial need; anyone can apply for them.
To compare private student loan options, check out Credible’s private student loan marketplace. You can see multiple offers from lenders at once and get pre-qualified without affecting your credit score.*
Types of Student Loans
There are two types of student loans: federal and private. Federal student loans are issued by the government and typically have lower interest rates and more flexible repayment options than private loans. Private student loans are issued by banks, credit unions, and other financial institutions, and can be more expensive than federal loans.
Here is a list of the most common types of student loans:
-Federal Perkins Loan: A need-based loan for undergraduate and graduate students with exceptional financial need.
-Direct Subsidized Loan: A need-based loan for undergraduate students with financial need.
-Direct Unsubsidized Loan: A loan for undergraduate and graduate students that is not based on financial need.
-Direct PLUS Loan: A loan for parents and graduate or professional students that is not based on financial need.
-Federal Stafford Loan: A loan for undergraduate and graduate students that is not based on financial need.
How to Apply for a Student Loan
The first step in applying for a student loan is to fill out a Free Application for Federal Student Aid (FAFSA®) form. The FAFSA form is used to determine your eligibility for federal student aid, which includes grants, loans, and work-study programs.
You can fill out the FAFSA form online at fafsa.gov or through the myFAFSA app. You’ll need to create an FSA ID to sign your FAFSA form electronically. If you’re a dependent student, one of your parents will also need to create an FSA ID so they can sign your FAFSA form.
The 2019–20 FAFSA form becomes available on Oct. 1, 2018. You’ll use information from your (and your parents’, if you’re a dependent student) 2017 federal income tax return when completing the 2019–20 FAFSA form.
You’ll also need to provide information on any other untaxed income you (or your parents) received in 2017 and any current bank balances—as well as other asset information—when completing the form.
The deadline for submitting the FAFSA form for the 2019–20 school year is June 30, 2020; however, some states and schools have earlier deadlines—so check with your financial aid office first! For example, if you plan to attend college in Maine, you must submit your FAFSA form by May 1, 2020, rather than June 30.
How to Repay a Student Loan
There are a number of ways to repay your student loan, and the method that’s right for you will depend on your individual circumstances. You may be able to make payments while you’re still in school, or you may decide to wait until after you’ve graduated. You can choose to make monthly payments, or you may opt for a lump sum payment.
If you decide to make monthly payments, you’ll need to budget for the additional expense and make sure that you can make the payments on time. If you miss a payment, you may be charged late fees or your loan could go into default, which could damage your credit score.
If you opt for a lump sum payment, you’ll need to be sure that you have the money available when it’s time to make the payment. You may be able to get a lower interest rate if you pay off your loan early, but depending on the terms of your loan, there may also be penalties for prepaying.
Whatever repayment option you choose, it’s important to stay on top of your payments and make them on time. By doing so, you’ll avoid costly fees and damage to your credit score.
Student Loan Forgiveness Programs
The federal government offers several student loan forgiveness programs, including the Public Service Loan Forgiveness Program and the Teacher Loan Forgiveness Program. Borrowers who work in certain public service or teaching jobs may be eligible for student loan forgiveness after making 120 qualifying monthly payments on their loans.
To qualify for the Public Service Loan Forgiveness Program, borrowers must work full-time for a qualifying employer, such as a government agency or non-profit organization, and make 120 qualifying monthly payments on their loans. Borrowers who work in certain public service jobs, such as teachers, nurses, and members of the military, may also be eligible for student loan forgiveness through the Teacher Loan Forgiveness Program and the Perkins Loan Cancellation and Discharge programs.
To learn more about these and other student loan forgiveness programs, borrowers can contact their loan servicer or visit the Federal Student Aid website.
Student loans can be a great way to help pay for college, but it’s important to understand how they work before you take one out. We hope this guide has given you the information you need to make an informed decision about whether or not a student loan is right for you.