A Helpful Guide to Student Loans

Although you probably don’t like the thought of finishing college with significant debt hanging over your head, student loans are what provide millions of people the opportunity to attend college. In fact, this form of financial aid offers several benefits.

Roughly 71% of all college graduates have student loan debt. With this financial aid, people can attend a suitable college or university as opposed to settling on a subpar school or spending years trying to pay for higher education on their own.

Earning a degree makes it easier to secure a higher paying job with a prominent organization. You should consider the loan an investment in your future.

Unlike conventional loans, those designed to help people complete college don’t require repayment for a full 10 years. Depending on the dollar amount borrowed and the length of time it takes to secure a well-paying job, it could take years to pay off the balance. Instead of feeling the pressure, you have some breathing room while building your career.

Especially as a younger individual just starting out in life, there’s an excellent chance that you have little to no credit history. By making your student loan payments on time and paying the balance in its entirety, you’ll establish excellent credit that gives you incredible buying power.

If you keep your college credits to a minimum each semester, you might get by using grants. Otherwise, you would need to secure a student loan. So, what’s the major difference between the two?

The federal government backs most student loans. Before it expired, the Perkins Loan was the most common. However, there are other options available. For an undergraduate student, most have a cap on the amount you can borrow each year, as well as an overall maximum. 

If you need more money, you can always apply for a student loan through a private financial institution. Along with looking at options provided by your bank or credit union, you might consider the Smart Option Student Loan from Sallie Mae. Compared to a more traditional student loan, this gives you 15 years to pay off the debt.

Pell grants, which come from the federal government, are the most popular. You’ll work with someone in the financial aid office at your school to see if you qualify. The awarded amount of a grant depends on your specific need and only applies if you’re an undergraduate student. Other qualifying criteria include the cost of tuition and whether you attend college as a full- or part-time student.

For both student loans and grants, you must first complete the FAFSA (Free Application and Federal Student Aid). The advantage is it gives you access to the largest source of financial aid designated for college. While many educational institutions and states use the FAFSA to determine a student’s eligibility for school and state aid, some private lenders use it as a qualifier for their financial program.

When filling out the FAFSA, never leave any of the questions blank. If you have no answer, simply write the number “0.” You’ll also need the federal school code for the college or university where you plan to attend. As for the questions on assets, these are only for investment and secondary properties, not your primary residence.

If applicable, have a parent sign and date the FAFSA along with you. Always double, if not triple, check your calculations since even a small error could delay the approval process. Finally, complete this form as early as possible after January 1st since educational institutions offer aid on a first-come, first-served basis.

After completing the FAFSA, you’ll receive a Student Aid Report (SAR), which is a summary of information on your financial aid. Before starting on the FAFSA, make sure to have with you any W2s, end-of-the-year pay stubs, or your most recent tax forms, Social Security number and any records of non-taxable income including disability, child support, Social Security and income from the VA.

Following are the different types of student loans available:

Often referred to as Stafford loans, as a direct subsidized option, the Department of Education covers accrued interest but only if you’re enrolled as at least a half-time student. To qualify, you must demonstrate that this loan would benefit you. The amount borrowed depends on the college or university where you attend.

For an unsubsidized student loan, the lender doesn’t base the amount borrowed on need or merit. Instead, you have to attend school at least part-time, and you’re responsible for paying the accrued interest.

Since a PLUS loan specifically helps graduate and professional students, lenders require a credit check. Therefore, you need excellent credit to qualify.

Parents, whether biological, step- or adoptive, make the payments on the loan while their child attends college.

After graduating or if you dropped out for some reason, you might want to consolidate several student loans. That way, you have one loan with lower interest and a longer repayment schedule.

Private lenders also have student loans. Typically, these have variable interest rates and flexible repayment options. The only caveat is that most borrowers need a cosigner.

As an undergraduate student, you can defer all your payments, go with interest-only payments, select full-principle and interest payments, or set your payments for as low as $25 a month.

For a lower interest rate, consider refinancing. While the federal government only refinances federal loans, private lenders refinance both federal and private loans.

As with any type of loan, you have to meet the lender’s criteria for qualifying. For funding that comes from the federal government, you need a valid Social Security number, be a citizen or eligible non-citizen of the US, and for men you have to register with the Selective Service.

You’ll also need to have a high school diploma or something equivalent like a GED, enroll in an eligible college or university, attend school at least part-time, maintain a 2.0 GPA, have never defaulted on another federal loan or grant and complete the FAFSA.

If you don’t meet the requirements for receiving financial aid, you can go with an unsubsidized loan. Usually, that means having excellent credit and meeting the minimum income requirement. Of course, you can always have someone with excellent credit cosign on a loan.

The last thing you want after college is to be paying off your student loan well into your 30s. You need to shop around and find a loan at a rate that’s affordable. A company like OppLoans will help you find the perfect student loan. 

Just because the federal government or a private lender gives you between 10 and 15 years to repay a student loan doesn’t mean you should wait. After securing gainful employment, you’d want to start making the payments. That way, you get ahead of the process. However, if it takes you a few years to find a lucrative job, you have a safety net.