Before considering any student loans, it is highly recommended that students exhaust all of their free money for college options, such as scholarships. Scholarships can provide small amounts of money for college, or they can cover your full college tuition costs (depending on the scholarship). Unlike student loans for college, scholarship money will never need to be repaid. This makes any amount you are awarded in scholarship money, valuable to reducing your overall student loan debt.
In terms of the best student loans for college, students are encouraged to start with federal student loans. Federal student loans are considered to be the best, because they are need-based, low interest student loans, that typically provide borrowers with the most flexible repayment terms. To apply for federal student loans, you will need to complete a FAFSA (which is available at www.fafsa.gov). FAFSA is the Free Application For Federal Student Aid, and acts as a gateway to all available federal financial aid for college. By completing a FAFSA not only will the student be evaluated for federal student loan eligibility, but also for federal grant eligibility (grants are a source of free money for college that will not need to be repaid).
Since federal student loans are need-based, a student may not qualify for enough money in federal loans to cover all of their college expenses. After federal student loans, the next type of loans a student may consider are private student loans. Typically private student loans are not considered the best type of loans for college, since these type of loans are based on a borrowers credit, something many new college students have little of. If you have poor or little credit history, you should consider obtaining a creditworthy cosigner in order to help you secure the loan and possibly receive a better interest rate. Private student loans can be among some of the most expensive loans, so be very cautious to not borrow more than you absolutely need. Follow these simple tips below to help make certain you are getting the best possible private student loan:
1. Compare student loan lenders.
Taking the time to compare different student loan lenders will help ensure that a student gets the best private student loan available. Each lenders private student loan products can be different, with different interest rates, terms, and repayment options. Since private student loans are based largely on a borrowers credit, what may be the best lender for one individual may not be the best lender for another individual. Selecting a number of different private student loan lenders to compare, will help identify what private student loan will offer the lowest interest rates, and best repayment terms based on the borrowers credit profile.
2. Review the interest rate.
Most private student loans offer a variable interest rate, meaning the interest rate can fluctuate over time. Borrowers should make certain to understand if the interest rate on the private student loan is variable or fixed, and if the interest rate is variable, what the maximum percentage it can reach is? If the interest rate on a private student loan is too high, borrowers can always try reapplying with a creditworthy cosigner to see if this may help lower the interest rate.
3. Review the repayment terms and penalties.
It is highly important for every borrower to completely understand the repayment terms of their private student loan. Borrowers should find out how long they have to repay the loan, what (if any) deferment or forbearance options the loan has, and how often the interest will be capitalized on the loan (interest accrued while in school and/or in times of deferment or forbearance that is added to the principle balance of the loan). Borrowers should also be aware of any and all late fees and prepayment penalties associated with the private student loan.
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