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With any loan option, only the absolute amount needed should be borrowed. There are two different kinds of student loans, Federal and Private.
FEDERAL: Supply the biggest number of school loans. Both the student and families can take out federal loans. Typically federal loans have better interest rates than private rates. The two student loan options are Federal Stafford Loans (subsidized and unsubsidized)and Federal Perkins Loans. Parents wanting to take out loans to help pay should look into the Parent PLUS loan. Repayment can be deferred until after graduation as long as the student is enrolled at least half time. Beginning July 1, 2006 the interest rate is fixed for Stafford Loans at 6.8%. Perkins Loans are a low 5% for undergraduate and graduate students that show a great financial need.
PRIVATE: Typically supplement federal loans. They can be obtained either through the school or through private institutions. Private loans tend to be based more on credit history and can have a higher interest rate, however they are usually lower than other lines of credit. There are numerous places such as banks, credit unions, and online to find private loans. It is extremely important that before applying for a private loan that all repayment stipulations, interest rates, and fine print is read carefully.
OTHER OPTIONS FOR PAYING FOR SCHOOL: Grants and Scholarships are readily available through many different avenues. Many schools offer work-study programs to help students make extra money. Most of these the student must qualify for, but can be very beneficial because a lot of times they have to deal with the student's major and can provide valuable work experience to put on a resume while helping to pay for school.
DEBT CONSOLIDATION FOR STUDENT LOANS: Since most students typically take out more than one loan to cover the college expense, when graduation comes many graduates now have multiple loans to start to repay. Loan consolidation can be a great tool to get all loans bundled together so that graduates only have to make one payment, reducing the amount of monthly payments and possibly reducing the interest rate. By consolidating you can lock in a fixed interest rate, which might not be the case if you keep all loans separate.
REPAYMENT OPTIONS:
Repayment varies usually from 10-30 years. A monthly payment is typically around $100 a month but varies obviously depending on the amount you need.
Extended Repayment: Spreads loans repayment out over a longer period, making monthly payments lower. Also options to have interest only repayment for the first 2-4 years. Remember though by spreading out the payments you will end up paying more in interest. To be eligible you must have a balance of at least $30,000.
Graduated Repayment: Monthly repayment starts lower and gradually increases. Typically starts at interest only repayment and then increases to add principle to the monthly payment. This is a great option for the graduate who might not be making a significant amount of money right after graduation, but will be start to make a significant more in near future. In the end you will end up paying more than the standard repayment, but at any time can repay additional amounts to reduce the amount of time.
When getting that first job after graduation be sure to look into the benefit packages your new employer offers. Many employers will help repay student loans if you agree to work at that company for a certain amount of years. Many school districts as well as some non-profit agencies will offer this as an incentive to get employees to stay around as well as balance out possibly a lower starting salary.
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