Comparing Federal and Private Loans

Students should prioritize federal loans as their primary option for college financing, but in cases where federal loans fall short, private loans can offer a viable solution to bridge the financial gap.

Private Student Loans — Loans given by banks and credit unions.

Federal Student Loans — Loans given the U.S. Department of Education.

Fixed-Rate Student Loans — The amount of interest charged on your loan doesn’t change.

Variable-Rate Student Loans — Interest rates depend on the market and can change over time.

Some students may NOT be eligible to receive federal loans because they:

• are not U.S. citizens
• are convicted of a drug offense
• are in default on a federal student loan
• don’t maintain satisfactory academic progress in college

Customized Education Loan Options

Private student loans offer greater borrowing capacity than federal loans and come with diverse interest rates, fees, and borrower terms. They can be variable-rate loans based on market fluctuations or fixed-rate options. Certain lenders may expect students to make payments during enrollment, while others provide flexibility through deferred payment plans or grace periods that extend until after graduation. Generally, students are the primary loan borrowers but may need a creditworthy co-signer, such as a relative or friend, for loan approval assurance.

Eligibility and Application Process:

Eligibility for private loans often relies on having an established and satisfactory credit score. As most high school graduates lack credit history, a co-signer becomes crucial. The co-signer, possessing good credit, agrees to be financially responsible for the loan throughout its duration. Generally, higher credit scores, either yours or your co-signer's, result in more favorable terms for private student loans.

Each lender may have its own unique application process for private loans. Many offer the option to complete the application electronically through their website. During the application, you will typically need to provide personal information such as your name, date of birth, school information, Social Security number, and income or tax details. Credit checks are commonly conducted by private lenders to determine eligibility. As private lenders do not disclose interest rates in advance, it is recommended to apply to multiple lenders to evaluate and compare the most advantageous terms available.

Upon approval, the lender will send you a letter containing the detailed terms and conditions of your loan. The loan amount will not be released until you accept these terms and sign a promissory note. This note serves as a binding contract, establishing your obligations and rights as a borrower, including the repayment of the loan and any interest accrued. It is essential to retain a copy of the signed promissory note for your personal records.

Loan Disbursement Information:

Typically, loans are disbursed to the school, prioritizing the payment of tuition and fees, which are the primary educational expenses. If there is any surplus amount, it will be distributed to you to address any outstanding educational costs. When it comes to private student loans, after tuition and school fees are covered, you have the flexibility to use the remaining funds for various educational expenses.

Private student loans are typically based on the overall cost of attending a school, which encompasses more than just the enrollment fees. It's important to exercise caution and borrow only what you truly need, even if you are offered a higher loan amount, as falling into excessive debt can occur swiftly and overcoming it can be arduous.

Insights into Federal Loans

• Federal loans usually offer fixed interest rates at affordable levels, and in certain cases, they can be subsidized, relieving students of interest payments while enrolled or shortly after completing their studies. Completing the FAFSA is a requirement to access federal loan options.
• The most common federal loans are Direct Loans, with undergraduate students having the opportunity to qualify for subsidized Direct Loans based on financial need and academic progress. Additionally, both undergraduate and graduate students are eligible for unsubsidized Direct Loans regardless of financial need. The amount of Direct Loan funds that students can borrow is determined by their academic year and the total federal loan funds borrowed thus far.
• Perkins Loans offer subsidized and low-interest assistance to students demonstrating exceptional financial need, making them a viable solution for covering college expenses. However, it's crucial to be aware that Perkins Loans are highly limited, comprising just approximately 2% of the total federal aid disbursed.
• For parents of undergraduate students, Parent PLUS Loans offer the opportunity to borrow federal loan funds at a fixed interest rate, with generous borrowing limits.
• GradPLUS Loans, available for graduate or professional program students, provide a fixed interest rate and generous borrowing limits, often utilized after maximizing Direct Loans.

Covered Loan Expenses

The typical coverage of student loans includes essential expenses for attending school, such as tuition, fees, books, supplies, and room and board. Private loans, on the other hand, offer the flexibility to cover additional costs like computer supplies, internet services, parking fees, and similar expenses.