Thanks to the availability of scholarships and loans, college is a dream that is available to many. Both public and private loans help thousands of students each year to attend institutions of higher learning. Before you sign on the dotted line however, you should look deeper into the details of your loan information, to be sure you know the associated responsibilities when it comes to repayment.
Discussion With Parents
When you begin the college application process, it’s a good idea to sit down with your parent or legal guardian and discuss finances. How much are they able/willing to contribute? Will your parents take out their own loans, or will you be responsible for financing your education? Having this conversation from the beginning is imperative, to ensure you are all on the same page when it comes to paying for higher education.
Loan Options To Consider
When possible, look into federal loans before considering private loans. These typically have a lower interest rate, offer more flexible repayment options (including income-based plans), and often do not require a cosigner. Federal loans do not enter repayment until you have graduated or stopped attending school at least half-time. And in many cases, there is a grace period before you must begin repayment.
If your parents are eligible, they can take out a Federal Direct PLUS Loan. These loans are the responsibility of the borrower (your parents) and have a fixed interest rate. Your parents will repay these loans, but payments don’t begin until you have completed college. If your parents are found ineligible for a PLUS loan, you may be able to borrow an increased amount through Direct Unsubsidized Loans. As an independent or graduate student, you may be eligible to borrow your own PLUS loans.
Federal Direct Subsidized and Unsubsidized loans allow you to borrow up to $12500 per academic year. The specific amount is based on your year of study and other factors (including parent PLUS loan eligibility). Subsidized loans are based on financial need, while unsubsidized loans are not. Direct subsidized and unsubsidized loans are taken out by the student, who is responsible for repaying them following departure from university, or failure to attend at least half time.
Perkins loans are a third type of loan you may be eligible for as a student. These are your own responsibility and you can borrow as much as $5500 per year.
If necessary, private loans are available for parent or student borrowers. These often have high interest rates and inflexible repayment terms, and loans may be based on credit and the availability of a cosigner.
How Financial Aid is Determined
To find out your loan eligibility, you and your family must complete your FAFSA as well as apply for financial aid to your prospective colleges. When you’ve been admitted, the school will send you an award letter, detailing the total cost of attendance, any scholarships or grants awarded, and what you have been found eligible to borrow.
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