If you have a college financing gap, you’re probably not in a position to choose whether to take out a student loan or not. You probably have to borrow. But being aware of the pros and cons of student loans will help you be a smart borrower.
The most important thing to remember: Loans – even affordable student loans – cost you money, so only borrow as much as you truly need, and only after you’ve exhausted all your options of getting free money, such as grants and scholarships.
The next step is to apply for Stafford Student Loans. The pros here are obvious – since the funds are guaranteed by the federal government, your credit report is not used in qualifying you for the loan. Federal student loans are fixed rate loans that remain fixed for the entire term of the loan. Rates are generally lower than most other college financing options. And you don’t have to start repaying until 6 months after graduation, giving you time to find a job before you have to start making payments.
The major drawback of federal student loans is the limited loan amounts, that only cover a fraction of college costs. In addition, you will have to file forms with the federal government in order to apply for Stafford loans, and you have to do that for each academic year. You are also limited with what you can use the funds for – Stafford loans can only be used to pay tuition, books, and housing. You can’t use this money to pay other education-related expenses.
In comparison, private student loans are usually easier and quicker to get. You can use the money for a wider range of education-related expenses, such as a laptop, and you don’t have to go through the process of filing forms with the federal government.
However, a credit check is required – and if you don’t have sufficient credit, a co-applicant (usually a parent) may be required on the application. Rates for private student loans are generally higher than federal student loans. It’s a good ideas to shop around though, since some private loans are significantly more affordable than others. You should beware of student loans who advertise “teaser rates” that appear low, but almost no one ever qualifies for.
The best private loans offer you an easy application process, and a repayment plan similar to federal loans, where you don’t have to start repaying until 6 months after graduation.