If you are a student, the chances are that you have taken out some loans to help pay your tuition. The student loans you take out will be one of your most significant financial decisions. You’ll need to consider a number of factors, including how much money you want to borrow and what type of repayment plan is best for you. Here are some things to keep in mind as you search for the right student loan:
• The amount borrowed should match your expected expenses. If you expect to spend $5,000 on tuition this year, it makes sense to borrow that same amount. However, don’t borrow too little if you think you might have more than enough funds available after paying other bills. It’s better to pay off an extra bill or two with cash rather than borrowing less so you can afford school later.
• Repayment plans vary widely depending on which lender offers them. Some lenders provide fixed-rate payments over several years; others allow borrowers to choose among different payment options each month. Your monthly payment may also depend on whether you’re taking advantage of federal aid programs such as subsidized Stafford loans.
• Interest rates aren’t always lower when students borrow through private companies instead of government agencies. Many private lenders charge higher interest rates because they make up any difference between their profit margins and those offered by the Department of Education. That means borrowers who use these types of student loans could end up paying more overall.
• Don’t assume all private lenders are created equal. While most reputable institutions provide good service, many shady outfits offer subprime loans at high-interest rates. Be sure to do your homework before signing anything.
• Keep track of everything. When you apply for a new loan, ask about fees upfront. Also, check to see if your current account has been closed due to nonpayment. And remember to save copies of every document related to your loans — especially promissory notes and statements showing your balance owed. These documents prove that you’ve made regular payments and help protect against fraud.
conclusion
The type of student loan you choose depends mainly on personal preferences. For example, if you prefer to avoid long-term commitments, you probably won’t benefit from federally backed Stafford loans. On the other hand, if you’d like flexibility in choosing where and when to repay your debts, you may decide to go with a private company. Whatever option you select, though, it’s essential to weigh the pros and cons carefully before committing yourself to a particular course of action.