Megan Shehan

A college education opens the door to many opportunities. However, those opportunities come at a price. Receiving a higher level of education is one of the best decisions you can make in life, but if you don’t have enough funding for it, going to college can almost seem impossible. That’s where student loans come in. Student loans make it possible for anyone to receive a degree. Not all student loans are created equal, though, and many things should be considered and factored in when you take out this kind of loan. Choosing the Right Loan There are two main types of loans: federal and private. Before delving into private loans, you should first see how much funding you can receive through federal loans. The federal government is in charge of these kinds of loans, and the first thing you need to do to see if you’re eligible is to fill out a Free Application for Federal Student Aid (FAFSA). Filling out a FAFSA will help the federal government determine how much you or your family can afford on your own and how much you would need help with. Here’s a student loan 101 on the kind of federal loans you can expect to receive depending on your need: Federal Perkins Loans This is a kind of loan that is lent to you by the school you’re attending. Not every school provides this kind of loan, though, and the amount you receive depends on how much funding the school has for it and your financial need. Direct Subsidized Loans If you are determined to be in need of financial assistance, you could be eligible for this type of loan. With Direct Subsidized Loans, the federal government will pay the interest (read on to learn more about interest) on your loan while you attend school at least half-time and six months after you leave college or if you drop below half-time enrollment. Direct Unsubsidized Loans Unlike the first two federal loans, Direct Unsubsidized Loans do not depend on the financial need of the applicant. However, the responsibility of paying interest will be solely on you throughout the lifetime of the loan. Direct PLUS Loans The last of the federal loans can be either taken out by you or your parents. Although financial need is not required, you or your parent could be denied based on credit history. Also, the loan amount will be affected by any other financial assistance you may have received. Once you have exhausted all federal loan routes, then you should consider receiving a private loan from a bank if you still need more funding. Having a good credit score is a must for eligibility and acquiring a good interest rate. If your credit score isn’t quite up to par (or not there at all), you can have a parent with a better credit score co-borrow of cosign. Show an Interest in Interest Loans are a funny thing; you always end up paying more than what you borrow. This is because of interest. To better understand interest, see it as the money you have to pay to use loans. The amount of interest you have to pay depends on the unpaid amount of money you borrow. Interest starts accruing the day your loan is disbursed—and doesn’t stop accruing until you pay your loan back in full. A handy calculation to figure out what your daily interest amount will be is: interest rate × current principal balance ÷ number of days in the year daily interest. Interest rates differ depending on what loan type you receive. Federal loan interest rates are set by Congress and are usually lower than the interest rates set by banks. Private loan interest rates are determined by how well the economy is doing and how good your credit score is (as previously mentioned). Depending on the loan type (such as a Direct Subsidized Loan) and repayment plan (such as an income-based repayment plan), you may not have to pay interest for a period of time or not at all. It's Payback Time Just as researching what kind of loan to get is important, so is researching how you’re going to repay that loan. The standard plan you’re put on is 10 years of fixed monthly payments. However, you can pick the student loan repayment plan that’s right for you during online exit counseling (although you may not have as many options with private loans). Here are some other ways to graduate from college with minimum debt: Only borrow what you need. If your loan amount is more than enough to cover your expenses, return what you don’t need. This will result in less money you need to pay back as well as smaller interest payments. Pay off your interest as soon as you can. By paying your outstanding interest early on, you can potentially save $2,000 or more by having a smaller loan balance when you enter repayment. Save wherever you can. Eating in, living at home, renting textbooks, and saving monetary gifts are all great ways to fund future loan repayment. Going to college is a great experience, and once you have a plan to tackle student loans, the only thing you’ll have to worry about is acing your finals. Use College Raptor's new Student Loan Finder to discover personalized loan options. Compare lenders and interest rates to find the ideal student loan---for FREE!

Megan Shehan

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What to Expect From Student Loans: Choice, Interest, and Repayment