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The Right Educational Loan Really Enhances Students’ Future Options!

April 14, 2011

student loansAll prospective pupils know the benefits of advanced academic attainment. When confronted with the price tag extracted thereby, however, many are at a loss – figuratively and literally. As they stare at their school’s financial aid award letter, gaping holes glare back.

If you are wondering how to bridge the gaps in your educational budget, student loans are probably the best solution. Below are some poignant pointers to help you pick the best student loan for you:
Student Loans are available in two basic genres:

Government

These loans are guaranteed by the US government in event of borrower default. Interest is set by Federal law. There are five types of government student loans:

  • Stafford Loans – available in two forms:
  • Subsidized – Maximum annual loan amount is determined by your economic need. Interest is fully deferred as long as you maintain at least half-time enrollment in an eligible educational program. There is a six-month post-graduation grace period before repayment must begin.
  • Unsubsidized – Unlike their subsidized counterparts, these loans are not need-based. There is, however, a maximum annual loan limit. Interest begins to accrue immediately upon loan disbursement. You may defer interest until after graduation. Unpaid interest is added to your principal balance if you do so, however. Your total debt grows while you are in school.
  • PLUS loans – Unlike either type of Stafford loan, PLUS loans are credit-based and come in two varieties:
  • PLUS loans for parents — Creditworthy parents or stepparents of dependent students may obtain these loans to defray children’s educational costs.
  • PLUS loans for graduate and professional students – Creditworthy independent students may obtain these educational loans for school-related expenses.
  • Perkins loans – The unique feature of these need-based loans is that they are administered directly by your school, rather than lenders or educational foundations.

Private

Private student loans are credit-based financial products that function much as auto or mortgage loans.

Disadvantages

  • Creditworthiness – You must be creditworthy.
  • Higher interest — Interest is variable and based upon your relative creditworthiness. Forget about getting the same low interest of government loans. Financial market dynamics – not the government – establishes the rate of interest.
  • Fewer loan forgiveness options — Federal student loans may be forgiven or defrayed in event of your incarceration, disability, financial hardship, or entry into certain careers. Most private loans have no such benefits.
  • Higher fees – Private loans have origination and application fees. Many private lenders also assess a repayment fee when loan repayment commences.

Advantages

  • Flexibility – Private loans do not have the rigid application deadlines of government loans. You may apply at any time the need arises – as many times as necessary throughout the school year.
  • Versatility – You are not limited by financial need; loan limits are fixed by federal law.

The higher costs of private loans make them less desirable than
government loans. Consider private loans only if you are ineligible for government loans, or have maxed out your government loan eligibility.

Look for the following criteria in any private student loan provider:

  • Payment deferment – Good private lenders offer a post-graduation grace period of at least six months;
  • Low interest – Secure the lowest possible interest and loan fees through comparison shopping. Lending is a competitive industry and policies vary widely among lenders. Many online search engines facilitate side-by-side comparisons of various lender offerings;
  • Institutional rapport – Good private lenders have established positive relationships with schools’ Financial Aid Offices. This can prove invaluable should it ever require persuasion to affect an upward adjustment of your award package to permit additional funding for unanticipated expenses. .
  • Repayment options – Consider only those lenders that offer interest-rate discounts for loan repayment via automatic bank account or payroll deductions;
  • Forbearance and deferment availability – In times of financial hardship, you won’t have to wreck your credit. Neither will you have post-graduation pecuniary pressures to distort your career plans. Do not consider any private lender that does not offer these options.
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