Going to college opens up opportunities for growth, higher salaries and much more. Sounds ambitious? It is but it comes with a cost. And this cost isn’t just a pinch, it’s more like what atlas had to go through. But instead of you carrying the world, it’s you carrying a heavy ball of debt.
This debt will pull you down but you can work to mitigate this and if controlled well you can reap benefits offered not just by the government but by other sources as well.
When you go about thinking of ways to pay your college tuition you can apply for scholarships, grants or loans. A scholarship is an award for a student who has shown excellence in a particular field.
A scholarship aims to reflect the purpose and vision of the donor which is best expressed by the person who receives the award. There are a number of scholarships in different categories ranging from sports, music and much more.
Grant is a fund that is disbursed by a party. This party is a corporation, foundation, trust or a governmental entity. The recipients are individuals or institutions. In order for a student to get a grant, he/she should meet the following
For a student who hasn’t qualified for a scholarship or hasn’t received any grant then the last and final option available for him/her is a student loan. Let us jump right into this complicated financial instrument.
A student loan is an amount of money borrowed from the federal government, an organization or a financial institution as a way to help pay for your education. It has to be paid back over time with a fraction of the interest rate.
It usually covers the cost of tuition fees, books and supplies, and living expenses. Some loans depend on the type of borrower you take the loan from or the type of loan selected.
Selecting the best student loans for your financial requirements is a big deal because understanding the pros and cons of the different types of loans is a huge step before taking a loan. Comparing your options will help you find the best deal for your needs.
For both government and private student loans, you'll have to go through an application procedure to see whether you're affirmed and how much cash you're permitted to get. You'll additionally find out about your repayment terms. When you're guaranteed for a student loan, the cash will be dispensed to your school to take care of all the educational expenses.
The procedure for verifying a student loan is distinctively relying upon whether it's federal or private. Realizing the distinctions is vital to guarantee that you get the best repayment terms for your circumstances.
Capitalization - Capitalization is the point at which your advance holder adds unpaid interest to the vital parity of your advance. This builds the general sum you owe now and later on, as you start paying interest on that bigger equalization. Capitalization happens at whatever point you enter reimbursement - or for government understudy advances, towards the finish of an elegance, deferment or self-control period – just as when you combine a creditor, it goes into default.
Consolidation - Consolidation is a reimbursement alternative that replaces borrowers' current obligations with a solitary, new advance. The union can make reimbursement less demanding by chopping down the number of credits borrowers have. Students can consolidate several loans together which can be paid off by the private lender, creating a new loan altogether with a newer interest rate.
Cancellation and Discharge - Under certain exceptional conditions, the government may pardon part, or the entirety of your understudy advances just as possibly drop or discharge the majority of your credits.
Credit pardoning, undoing, and discharge are basically similar things yet they are applied in various circumstances. For instance, in the event that you don't need to pay your alternative advances because of your activity or tutoring, this is ordinarily called absolution or discharge.
Deferment and Forbearance - Deferment is a time of a timetable where you are released by your loan specialist for making installments in specific situations throughout your life may it be from unemployment, Military arrangement, Serving in Harmony Corps or Economic Hardship. As a matter of first importance choice accessible for you when you choose for help.
It relies upon your condition, installments are suspended in a half year interim for a period as long as 3 years. It's normal that you would work improve the monetary circumstance amid the course of events. In the event that your advances are qualified, you will unite them all into one reasonable installment.
A Federal loan advance is positively and regularly viewed, as in Default when the borrower neglects to make a required credit installment for an extended time period.
Forbearance of student loans is offered for borrowers who can't make advance loan installments, however, don't meet prerequisites for deferment.
Under forbearance, installments may be briefly suspended or decreased for as long as a year. Remember, interest may keep on accruing on your loan advances.
Forgiveness - Loan forgiveness can possibly work on the off chance that you've taken a government credit. This is the exceptional advantage of government advances. Under extraordinary conditions, the government can forgive the loan amount up to some degree, and now and then, it can excuse the whole sum.
There are numerous sorts of understudy credit forgiveness programs for individuals from various foundations, for example, law, training, open administration, and that's just the beginning. Fundamentally, in case you're not required to pay the credit sums any more drawn out because of your work or occupation, this is called advance forgiveness.
Grace Period - A grace period is a term after the due date by the time the loan repayment needs to start before the penalty gets applied.
Pay As You Earn (PAYE) - Federal student loans offer a wide range of alternatives to make installments progressively sensible. Pay as you earn is the most up to date and it binds credit installments to a borrower's salary.
Promissory Note - This is your advance's agreement or loan’s contract. On the off chance that you need answers about your reimbursement choices or rights as a borrower, look in your promissory note.
Rehabilitation or Recovery - Should your loan advance enter default, recovery is one choice you need to return it to great standing. You can likewise merge out of default or pay the debt in full.
Refinancing - Refinancing enables you to get a good deal on interest making installment less demanding and reasonable. By removing a couple of rates you can spare some cash in reimbursement and in the time span of obligation reimbursement.
Subsidized - Subsidized loan advances are ones that the legislature pays the interest on while you're in school and during approved deferment periods. What's more, they will pay this interest during your grace period in the event that you obtained these credits loans before July 1, 2012.
Servicer - A servicer sends student loan credit bills and gathers installments. They are not your bank. Your loan specialist, which is the government for all administrative. Learn more on Student Loan Servicers
Loan default - When you fail to pay back your loan upon the terms and conditions of the lender then you default on the loan. Depending on the type of loan that you have borrowed actions will be taken. If you miss a number of payments and exceed the terms of your forbearance without making a payment on the specified date then you default on your loans.
Interest rate - An interest rate is an amount received by a percentage of the principal amount lent to the borrower. This amount is added on to the principal amount of the loan and this total amount constitutes the monthly payments to be met by the borrower during the repayment period.
The interest rate is made as fixed or variable based on the terms of conditions of the lender that the borrower has agreed to. A borrower with a fixed rate will have to make the same amount of interest payments throughout the life of the loan. But a borrower who has agreed to a variable interest rate will make interest payments where the interest rate varies based on the market conditions.
Discretionary income - This is your income after you deduct mandatory charges, taxes and other expenditures on items that are termed as necessary. Your discretionary income is what's used during the calculation of your monthly payments for an income-driven repayment plan.
Student loan lawsuits - Although lawsuits related to student loans are not fairly common they can happen for certain cases. Whether you have private student loans or federal student loans once you start defaulting there are ways in which the lender can take back their money. For example, in the case of federal student loans, you can get your wages garnished. Collection agencies are hired to pressurize you to pay.
Bankruptcy - When a borrower cannot repay his/her debts back to their creditors then they may seek relief. This relief can be from some or all of their current debts. But it should be noted that bankruptcy is imposed by court order, a borrower can only declare for bankruptcy.
Projected loan forgiveness - When you enroll for a repayment plan then you can project the forgiveness of the remainder of your loans after making 120 qualifying payments. You will have to enroll for an income-driven repayment plan or for service corps in order for your payments to be eligible for forgiveness.
Loan fee - When you take a loan from a lender you will be charged a fee. One such fee is the origination fee which is charged for processing a loan application. This is an upfront fee.
Deferred payment loan - This is an arrangement where the borrower is allowed to start making payments at a time in the future. This time is specified and the borrower is expected to commit to this specified time. The terms and conditions offered vary from the loan amount and the type of loan. The flexibility of the loan repayment plays a huge role here.
There are mainly two types of student loans offered to the students. The Federal Government offers Federal student loans, whereas the Banks offer Private Student Loans.
It is advised for borrowers to try and explore all the options available to them. There are different procedures a borrower must go through for federal and private student loans. It is advised to first exhaust yourself of the federal options available to you then seek out for private options.
In order to check what federal loans you are eligible for, you need to fill out a form called the FAFSA ( Free Application for Federal Student Aid).
What is the FAFSA?
The Free Application for Federal Student Aid is a form that is used to award financial aid from the government, states, colleges and other organizations. This form helps the applicants to get access to grants, scholarships, work-study programs, and federal student loans.
If you are making plans to go to college then filling the FAFSA should be a number one priority. While you are still in college you can submit the FAFSA, you can submit it each year. The FAFSA should take only 30 minutes to fill up. Here are some deadlines you need to look out for regarding FAFSA:
While keeping deadlines in check you need to keep an eye out for your school's FAFSA deadlines. You can fill the FAFSA form at the official Federal Student Aid Website.
Here are the steps to fill up FAFSA
1) Create your FSA ID - Your ID will be a username/password combination that will give you access. You can take access and then go ahead to fill the form online. This ID will help you access information regarding your financial aid for the years to come and also information on the student loans you will have to repay once you graduate. If you are dependant then your parents/ guardians will have their own FAFSA ID. The ID has to be exclusive and cannot be made on behalf of somebody.
2) Obtain the relevant documents - It is advised to keep all relevant information so you can fill the form with ease. A lot of financial information will be asked of you when you have to fill the form so keep the required documents ready.
3) Refer a guide that contains the structure and relevant queries in the FAFSA form - Everyone won’t have to fill the form the same way, a lot of the form depends on the individual's family circumstances. It is different for dependent and independent students. Immigration status will also vary between applicants.
4) Make use of the IRS data retrieval tool - It is common for one to make mistakes while filling up a form. But the FAFSA is too important a form to afford any costly mistakes so if you are looking to avoid making any mistakes then you should transfer your federal tax return information directly into your FAFSA with the help of the IRS Data Retrieval Tool. Accessing the tool is easy just click on the “Link to IRS” to prefill the form with your information.
5) Have a predetermined list of colleges you want to apply - It is important to have a list of schools ready before you fill the FAFSA form. While filling the form you will have to fill up the school codes for up to 10 schools. These are the schools you plan on applying to. In case you have a doubt regarding the school codes then you can look up the codes at the Federal student aid website.
In case you haven’t decided which are the schools you want to apply too then you should fill the form. Once you decide on a school you can update the application. All of the schools listed will receive the information you filled in your FAFSA form.
After filling the FAFSA form
Once you are done filling the FAFSA form you can go ahead and complete any additional financial aid forms if required and review your Student Aid Report.
If there are mistakes you can go ahead and update your FAFSA if necessary. If you are selected by a particular school then you’ll be notified by the financial aid’s office. You will be asked to submit documents that support the information that was included in your FAFSA.
In case you feel like you need to be awarded more than what you got, you can make an appeal. You will have to renew your FAFSA every year of college.
Federal Student loans are the loans provided by the federal government. These loans come with more benefits than private loans. Student loans are either got by the government or from private sources. While taking out a loan for your studies it is important to note who is making the loan. Federal loans are classified as the following -
Direct Subsidized loans are the loans provided to the borrower based on financial needs. These loans are made available to undergraduate students.
Direct Unsubsidized loans are the loans credit ratings and in this case, the school decides how much money can be borrowed based on the cost of attendance, credit score, and financial aids received. These loans are made available to undergraduate, graduate and professional students. The eligibility for these loans is not based on financial need.
Direct PLUS loans are the loans that are lent only on the basis of the credit score of the student or parent and preferably chosen over as it has low-interest rates and can be repaid soon. These loans are made available to graduate or professional students and parents of undergraduate dependent students. It should be noted that borrowers with an adverse credit history must meet additional requirements in order to try and qualify.
Direct Consolidation Loans are the loans that are got when you combine all the eligible federal loans into a single loan with a single servicer.
When you get your budgetary guide letter, you have to choose in the event that you will acknowledge the bundle. Seeing how government student loans work can enable you to choose whether they are suitable for you.
One of the advantages of government student loans is that you needn't bother with a credit check much of the time. Just Direct PLUS loans require a credit check. Else, any individual who goes to class can get government student loans. No compelling reason to demonstrate pay, credit standing, or even get your folks to co-sign.
Understand that you will pay interest on student obligation. With government loans, the financing cost is set by Congress every year. Every scholastic year, you get another advance, with a financing cost that remaining parts fixed for the term of the credit. Before the finishing of your time in school, you will have a few student loans with various financing costs.
With a sponsored student credit, the government pays the interest on your advance while you are enrolled in a school (at any rate half-time), just as during the beauty time frame after graduation.
For all other bureaucratic loans, the government will not pay the interest while you are in school. Rather, interest is collected the entire time you are at school. Towards the end, the accumulated interest gets added to the essential parity towards the finishing of your grace period.
At the point when that occurs, you end up paying interest on interest. The uplifting news is that you can keep this from occurring by making installments on the interest before the elegance time frame closes.
The amount you can borrow depends on whether you are an undergraduate, graduate, and professional student or a parent.
Undergraduate student - under the direct subsidized and direct unsubsidized loans the maximum amount you can borrow varies from $5,500 to $12,500 per year. This amount depends on which current year of study the applicant is in and the dependency status of the applicant.
Graduate or professional student - An applicant can take up to $20,500 each year under the direct unsubsidized loan program. Direct PLUS loans can also be used to help cover the remaining costs of tuition. Given that this remaining amount is not covered by other financial aid.
Parent - If you are the parent of a dependent undergraduate student then you are eligible for a Direct PLUS Loan which can help cover the remainder of the tuition which is not covered by financial aid.
Getting educated is a huge investment in this day and age but it cannot be compromised. The doors and opportunities that open up for you once qualified is immense, but the costs of education are what hinders people. One should consider federal student loans as a source of financial aid because of the following reasons-
1) Federal student loans have lower interest rates when compared to private student loans. These rates are fixed, which means they are independent of the market fluctuations. It should be noted that the rates offered are lower than the rates associated with your credit card payments.
2) Most of the federal student loans do not require a credit check or a co-signer.
3) The repayment of your federal student loans does not begin until you finish college. You will be given a grace period as well which your servicer must honor.
4) If a borrower can demonstrate a financial need one can receive subsidized federal student loans where the interest payments are covered by the government.
5) One can avail a number of flexible repayment plans when the borrower goes about repaying the loans. You can also postpone any payments to be made once you face any difficulty while repaying.
6) If you take up certain jobs or at organizations that are designated as non-profit then you can qualify to get a portion of your loans forgiven. Given that you meet all the required conditions.
In order to get a federal student loan, you need to apply for it by completing and submitting the Free Application Federal Student Aid (FAFSA) form. Based on the results awarded to the applicant, the college will send a financial aid offer. This offer will include federal student loans.
Further instructions on how to accept all the loans included in the offer or just a few of the loans included will be done by the school.
Before you receive any funds you will need to -
Finish entrance counseling. This is nothing but a tool to help the borrower understand his/her obligation to repay the loan.
Sign a Master Promissory note. This note shows that the borrower agrees to the terms and conditions of the loan.
It is important to contact the financial aid office at the school you are planning to attend. The process differs from school to school so it is important to get in touch and get details specific to the process at that particular school.
It is always advised to get the most out of the federal and free and financial aid offered. This includes the scholarships offered by private organizations as well.
Fill up the FAFSA form and see what you can avail of. Even if you feel that you won’t qualify for any form of financial aid, there is no harm in filling and submitting the FAFSA.
Under Title IV of the Higher Education Act, the FAFSA is key and a basic requirement for all student financial assistance programs. These programs include grants, loans, and types of loan study programs. There are no income cut-offs or specific grade requirements for certain types of financial aid.
Many private scholarships and grants require the applicants to complete FAFSA as it helps them determine eligibility.
Student loans are used by college students to help pay for their educational expenses. Federal student loans are affordable and come with a number of benefits for the borrower but they may not be the go-to solution for every student. Here are some of the potential drawbacks associated with federal student loans -
1) Graduate students do not have access to subsidized federal direct loans. The subsidized federal direct loans are made available only to undergraduate students.
2) Loans given to graduate students have a higher interest rate as compared to the loans given to undergraduate students.
3) A borrower will not be able to discharge his/her loans if they have declared bankruptcy.
4) Those borrowers who are unable to make payments can find relief by a provision under a category called “undue hardship”. But it is quite difficult to qualify for this category so the benefit offered is limited.
5) Limits on the borrowing capacity for unsubsidized loans. Although one can qualify for these loans regardless of their credit, grades or financial need, each year you can borrow an amount which ranges from $5,500 for dependent undergraduate students and $20,500 for graduate or professional students. Apart from these borrowing limits for each year, there are also total loan limits.
Learn more on Federal Student Loans
Following a half year of the deferral period, you will begin to make key and interest installments.
Federal loan repayment is adaptable and simple to run with. You can apply for delay or forbearance for a timespan where you don't need to pay back the credit on federal loans. Under unsubsidized loans, the interest will be continuously collected during the deferment.
There are several plans offered to the students to repay the student loan, depending on income or standard methods. They're given below.
For a timeline of 10 years, there is a fixed month to month sum to be paid with an objective to satisfy the credit. This generally costs more at once as you will have to pay a certain standard amount every month for 10 years.
It is a little installment in which you can help you repay the loans in 10 years. In this plan, the rates gradually increase, hence, the name suggests the graduated plan.
It gives a regularly scheduled payment which is fixed and it has an objective to pay the federal loans in 25 years. Due to this, the monthly amount to be paid is small. Under this alternative just accessible advance holders with $33,000 or more paying off debtors.
This plan is based on the income of a person and it allows for monthly payments, as lower as 10% of your discretionary income. It helps in lowering payments for federal student loans. It further has four types of plans.
a) Income-based repayment plan (IBR) - It is the most widely available income-driven repayment (IDR) plan for borrowers with federal student loans. It is applicable to those loans available since 2009. These plans can help borrowers make their loan repayments more affordable. All the remaining debt after 25 years of repayment will be forgiven.
This is made available for all those borrowers with direct or FFEL loans. It should be noted that this repayment covers most types of federal loans made to students but not those made to parents. Because of the usage of a sliding scale, the IBR payments are made more affordable.
If you are earning below the 150% poverty level then you can expect a loan payment of 0$. In case you earn and don’t fall below that poverty level then you will be capped at 15% of whatever you earn.
b) Pay As You Earn - Out of all the income-driven repayment plans, PAYE has the strictest requirements. It is the best option for married borrowers, grad students and also for borrowers with low incomes. Here 10% of your discretionary income is used for your loan payments and after 20 years of repayment, the remainder of your loan is forgiven.
In order to qualify for PAYE, a borrower should have been enrolled for college after 2007. In case you did enroll at university before 2007 then you will have to meet the following conditions:
Taken out federal loans after 1st Oct 2007
No existing federal loan balance during while taking out these loans
Received a direct loan on or after 1st Oct 2011
In case you are hesitant to go ahead with PAYE, here are the situations where going ahead for PAYE would be the most beneficial if the borrower-
Does not expect his income to increase over time
The borrower has debt from grad school
The borrower is married and the spouse has a source of income as well
In case you are married or you have plans of getting married then your payments to be made under PAYE depend on your tax filing status. Which is given by:
1) File taxes separately - then the payment to be made will depend solely on the borrower's income.
2) File taxes jointly - then the payments to be made will be based on the borrower and his spouse’s income.
Not all plans give borrowers options this liberal. The income-driven payments last up to 25 years, by using PAYE you can keep your payments low during the repayment by filing your taxes separately.
c) REPAYE - this income-driven repayment plan is best suited for you if you are single with no grad school debt and you don’t qualify for any other income-driven repayment plan. The federal loan payments to be made are 10% of the borrower's discretionary income with the remainder of your loan balance forgiven after 20 or 25 years of repayment.
If you are confused about whether to go ahead with REPAYE or not you should consider the following instances where REPAYE would be the most beneficial for a borrower -
You don’t have grad school debt
You expect a higher income in the future
You are single
You haven't qualified for any of the other income-driven repayment plans
Rise in income and REPAYE
With a rise in income, there are chances of the borrower losing their qualification for an income-driven repayment plan. Once you lose the income-driven repayment plan then the payments to be made are no longer based on your income and any unpaid interest would be added onto your balance thereby increasing the amount you owe.
But for borrowers who are enrolled with REPAYE, the payments will always be kept at 10% of the borrower's discretionary income. It should be noted that with a rise in income the payments to be made under REPAYE can be still higher than what one would be expected to pay with the standard repayment plan.
d) Income-Contingent Repayment (ICR) - ICR has the most expensive payments to be made when compared to the other repayment plans. But if you are a parent PLUS borrower then it is the only repayment plan available to go for. Under this repayment plan, the borrower has to make payments capped at 20% of the borrower's discretionary income. The plan lasts for 25 years.
If you are hesitant on whether this is the right plan for you to consider the following instances which are suited best for ICR -
You want lower payments to make lesser interest payments
You have Parent PLUS loans or a consolidated loan which has Parent PLUS Loans
ICR has the most expensive payments but in the case of Parent PLUS loans, ICR can be considered in between the regular standard repayment plan and other income-driven plans. The reason why it finds its place in between the two is that the payments to be made are not high like those in a standard repayment plan and won’t be too low with an accumulation of interest.
The high payments to be made in ICR are actually a good thing because you tackle a majority of the interest accrued. Thereby minimizing any future costs, if you do get the remaining balance forgiven then it is subjected to tax. So borrowers who get the remainder of their tax forgiven can expect a tax bomb at the end of the year.
One should be careful before going ahead with an income-driven repayment plan, a borrower should be clear on what he/she wants to get or achieve by enrolling with the plan. If one wants to reduce the accrued interest then he/she must go ahead with the REPAYE instead of ICR. REPAYE offers a number of subsidies on any unpaid interest that isn’t offered by ICR. If you are considering making extra payments towards the principal amount owed then you shouldn’t consider ICR.
Learn more about Student Loan Repayment Plans
The loans that are offered by private lenders are referred to as private loans. These loans that are used for education purposes are referred to as private student loans. The private lenders out there are credit unions, national banks, online lenders or even your local bank.
College tuition is quite overwhelming and there are situations where a student still can’t cover up all his expenses after exhausting his federal options. Then the only option left for a borrower is to go ahead for private student loans. These loans can cover up your costs whether you are in a graduate or undergraduate study program.
These loans are provided by private banks or money related establishments to pay for the educational cost charge. These Private student credits are typically not justified, despite any potential benefits as they have a high rate of interest collected on it, which will finish up in paying twofold the measure of the educational cost charge at the season of reimbursement of the advance.
Apart from the coverage of tuition costs, private student loans can be used to cover other costs as well. If you are a medical student and you are pursuing your residency then you can use private student loans to help cover costs incurred during your residency.
Another situation is for those borrowers who are going to study for the bar as a law student. A lot of money goes into preparation for the bar exam and these loans help you cover these costs which could not have been met with the help of federal student loans. These kinds of loans are known as bar study loans. Examples are - Sallie Mae Bar study loan, PNC solution for Bar study, Discover Bar exam loan, and more.
There are a number of lenders out there who provide private student loans for both parents and for students. It is quite difficult for a student to try and qualify for a loan on his/her own. We will get into the details of qualifying for a student loan later on but in short, a borrower should have proof of income and a good credit score. Another option out there is a co-signer, who can help you qualify for the loan. One must be well aware of the conditions of getting a co-signer on board and what the options available for the co-signer release.
A federal loan application revolves completely on FAFSA, but in order to get a private student loan, you need to apply separately with a lender. Here are the steps a borrower should follow if they decide to go for private student loans.
1) Conduct your own personal research - Private student loans differ from lender to lender with different terms and conditions to be met. A loan may be suited for a particular borrower but might not suit another since each borrower's financial conditions vary. It is important to check with the school financial aid office to get an idea of which lender to choose from. The schools usually have a preferred lender list.
A borrower can have his/her own way of coming up with the list of lenders. Regardless of the way of picking a lender one must keep the interest rate, payment terms, repayment period and the fees in mind. While shopping for a lender you can always pre-check an application as this will not conduct a hard check so your credit score will not be affected.
Take up many pre-applications as you can with lenders you want to consider and then once you decide you can apply. When you apply then a hard credit check is conducted which can affect your credit score.
You can decide on the borrowing amount once you have shortlisted a college.
2) Fill out your application at the right time - Unlike federal student loans where you have to follow the FAFSA deadlines the private student loans do not have a deadline. A borrower can seek aid from these loans all throughout the year.
Although you may not have any deadline it is advised not to start an application with only a few days or weeks left for the payment of the tuition. Processing a student loan application can take up to two months or even more. So it is advised to have an ample amount of time to stay on top of any costs and expenditures.
3) Consider a co-signer (if required) - For those borrowers who do not have a good credit history or who don’t earn a high income they must consider a co-signer to get approved for a loan. There are even students at the graduate level who consider a co-signer since they do not have a satisfactory credit score.
The next big question is where do I get a co-signer? It is always advised to try and get a co-signer who is a close friend or someone from your family. Many borrowers mistake that getting a co-signer on board will get them off the hook during repayment. You will have to repay the loan back along with interest. When you miss a payment and let your loans fall into delinquency then you hurt not just your credit but also your co signer's credit as well.
4) Get all the required documents for application - If you decide to go ahead with a private loan with or without a cosigner you will have to provide certain financial information. Given below are some of the documentation to keep in hand during the application for a private student loan.
Social security number
The applicant's personal information - date of birth, phone number and home address.
A list of the borrower's assets and their respective values.
Applicants latest tax returns
Information regarding the applicant's employment
A personal reference
5) Fill up the formal application for a private student loan - Every private lender has their own process to apply for a loan, but the documentation required remains fairly the same. The formal application will ask you to provide some personal information and also the co signer's info if you decide to get a cosigner on board.
You will further be asked to provide financial information, which could be details related to your tax returns or pay stubs. This will be followed by providing school information which could be your loan period, loan amount and graduation date. A few lenders might even ask for a personal reference. Be sure to check the lender's terms and conditions and then go forward with the application process.
In order to get qualified for a loan with a private lender you will need to meet the following requirements:
Proof that you have enrolled at an eligible school
Proof that you are a US citizen or a permanent resident
Proof that you are of legal age
Provide valid information about your tuition and other fees which can occur during your study
A valid estimate of the financial aid you want to receive
Provide proof of a sufficient income
Proof of employment
Proof of credit-worthiness
Being creditworthy and is difficult to show for borrowers and this can hurt a borrower's application. In order to overcome this, you can get a co-signer on board. You can always apply for a student loan without a cosigner but getting a co-signer on board can help further strengthen your application.
It is advised to get a parent, spouse or a family friend as a co-signer. The co-signer takes up the responsibility for repaying the loan, here are the requirements to be met by a co-signer:
Have a verifiable income
Have maintained a good credit history of borrowing, repaying and charging with little or no late payments on his/her credit report.
Have no history of excessive delinquencies
No prior defaults on student loans
Be a US citizen
Be at least 18 years of age
If you get approved for a private student loan without a cosigner it is still advised to get a co-signer on board. This can help in reducing your interest rate. Private lenders have their own criteria regarding cosigner release. Most of the private lenders will allow a co-signer to be released from the loan after a total 24 consecutive payments are made on time.
While getting a private loan the lender will usually limit the amount lent to the total cost of attendance minus financial aid. Some lenders just provide a yearly cap to their borrowers and let the borrower decide. This can be a problem later on so it is advised to the borrower only what's needed and not the maximum you can get.
If you try and test your maximum borrowing limits, borrowing more than what you need. Down the road, you will face a major debt burden.
You will have to start repaying your loans back once your grace period has ended. The grace period differs from lender to lender and also the type of loan contract. Some private student loans have a short grace period which allows the borrower to defer payments until he/she is done with school.
Some private student loans require the payments to be made as soon as the funds have been disbursed. It is important to check the loan terms and conditions to check all the available specifics to when the repayment of the loan will begin.
What if you can’t make your payments?
Making your payments is crucial as making on-time payments will help boost your credit score. It is crucial to check for lenders who have options to help borrowers make their repayment more manageable.
It is crucial to check your payment requirements because if any payment is marked as late, it is reported to all the consumer credit reporting agencies. This will affect your credit score.
When you stop making payments on your loan 120 days after disbursement your loan goes into default. Once in default, your lender can demand a payment of the entire loan done immediately. They can even seek repayment to be made from your cosigner, give your account over to a collection agency, report your default to credit bureaus.
Some lenders will also charge additional fees which can further bury you in debt. Finally, at the end of it all, you won’t be able to dismiss the defaulted loan even during bankruptcy. The payments to be made will go towards the interest and the principal amount of the loan.
Before you go ahead with private student loans you need to consider both sides to understand it is right for you. Here are the pros and cons of private student loans -
Pros of private student loans
Unlike federal loans that are limited in size, private student loans can cover the total cost of attendance(COA).
In certain cases, the borrower can receive a lower interest rate with a private lender instead of going ahead with the federal direct program
A borrower can get additional discounts with private lenders. One example would be the auto pay reduction of 0.25% on the interest rate
The application process and disbursement of funds with private student loans is shorter
Parents with a good credit score but don’t want to be the primary borrower of the student can seek refuge with the private student loans available to them
Private lenders have attractive cosigner release options.
Cons of private student loans
A credit check is done before the loan is offered
Cosigners are expected to have a credit score rating of 720 or higher
The interest rate offered is usually variable so the rate can increase or decrease over the life of the loan instead of being constant
There are cases where the borrower might have to start repaying back the loan while still in school
The repayment plans that are offered are not as flexible as the ones offered by the federal direct program.
It might seem overwhelming to manage a lot of loans so here are a few points to help manage your private loans.
You will have to apply for a loan each year you are in college so you will have to time the application well
You will have enrolled in school at least half time
As interest accrues throughout the life of the loan it is important to try and make in-school payments to lower the cost of the loan
When you graduate or leave school you will have a grace period of 6 months, so it is important to try and get your finances together during this period
While taking out loans it is important to keep track of how much you are borrowing and from whom.
Always remember to borrow responsibly.
Before going ahead with a lender, it is important to check all your options. Here is a list of questions to help you decide on the right lender:
What is the interest rate range?
Do you have an option to choose between fixed and variable interest rates?
What are the fees one can expect like the origination fee, and more
Is there an in-school repayment option?
What are the options to make your debt more manageable?
Do you have access to your FICO score?
What are the additional benefits available to help make the company more valuable?
Is the lender reputable with a good number of years of experience?
Learn more on Private Student Loans
The key purpose of loan advances is in the expense and utilization of FICO assessment in deciding the qualification.
College students applying for Federal loans won't need to experience the credit check. The credit can be denied if there is clashing data present in his financial record.
The financing cost on the federal loan is fixed and the loan cost on the Private student credit can be variable or fixed and they are generally high.
Students understudies show that monetary needs could get a bureaucratic financed advance where the government will pay their interest until you graduate. A private student loan is never sponsored and you have to pay all the interest.
Federal student loans offer adaptable reimbursement choices and credit absolution programs. The private student loans have few reimbursement alternatives and no advance absolution programs.
Federal student loans don't need to be paid until you are graduated or dipped under half time as loan status. Numerous Private lenders request reimbursement while you are still in school.
|Loan Type||Average Interest Rate||Credit Consideration||Subsidization||Income-Driven Repayment Plan||Forgiveness|
|Federal student loan||4.45%(fixed) for undergraduates and 6%(fixed) for graduates||No||Yes (certain loan types)||Yes||Yes (if qualified)|
|Private student loan||7.99% usually variable||No||No||No||No|
It should be noted that private student loans are generally more expensive than federal student loans. With a fixed interest rate you will have to make the same amount of interest payments until you finish paying off the loan completely. Variable interests are tricky as they might seem low in the beginning but they are subjected to market risks so they can increase exponentially later on during the repayment period.
Be well aware of what you are getting into, especially when it deals with loans. A loan might seem attractive but be well aware of all the terms and conditions and not just the repayment terms. Loans can help you get the future you deserve or they can haunt you forever.
Looking to tackle the rising interest rates by refinancing your loans? Refinancing is a good step to help make your debt more manageable but it isn’t for everyone. Let's break it down.
There is nothing fun about paying back student loans except when you save some money. This can be done by managing your debt the right way, so if you have a number of loans to manage it well would be to consolidate the loans into a single loan with a lower interest rate. With this, you have to just make a single payment each month so it is much easier to track.
In the current scenario, we have the student loan debt piling up and with this rising benchmark rate, the variable rates are also expected to go up to.
When you refinance with a fixed interest rate you are safeguarded from the rising rates.
As we discussed earlier, refinancing is not for everyone but for you consider refinance you need to check whether your current situation is best suited for refinancing. Here are some factors to consider if you are ready to refinance :
1) Credit score - With a credit score of 700 or more you can easily qualify for a loan. There are a number of online sites where you can check your credit score. If you have a low credit score you can work towards improving the score.
2) Maintain a low debt to income ratio - The best way to do this is to make more money than you spend. When we say debt we refer to not just your student loan debt but the debt on your credit card, car loans, mortgage and much more.
Here are a list of situations where if you find yourself in you should go ahead and consider refinancing
1) When you get a stable income and good credit - if you have a good credit score then you can qualify for a lower interest rate. The sooner you take up refinancing the more you can potentially save more. You can also pay off the loan quicker with a lower interest rate.
You won’t be able to refinance right after you graduate because of the fact that not everyone can land a stable job right after graduation.
2) Loans with high-interest rates - refinancing sooner will help you save money on interest if you qualify for a lower interest rate. Federal loans no longer have variable interest rates unless you have taken up a loan before 2006. Refinancing can help you get a new loan with a fixed interest rate this will safeguard you from the increased rates of interest.
3) Multiple loans that are expensive - If you have loans that are worth lesser than $10,000 then it isn’t considered to be expensive. Increase the length of your payment period so you can lesser payments but for a longer period of time.
4) You are done with your grace period - After you are done with your undergraduate degree you will get 6 months where you don’t have to make any payments. Post these 6 months you will have to begin your repayment journey. This is referred to as grace period, use these 6 months to pick the right lender to refinance with.
The grace period is also used by graduates to find a job. Most student loan borrowers take on extra loans so avoiding any payments from previous loans will always be helpful.
Learn more on Student Loan Refinancing
Managing your debt sounds great and if refinancing can help you get this then everyone should consider it. Here are certain situations where it would be best to avoid taking up refinancing if you are-
1) Looking to qualify for federal forgiveness programs - Loan forgiveness is great because any remaining loan balance is forgiven (but it is subjected to tax). When you have a mix of federal loans and private loans and you refinance. Upon doing this you get one single loan from a private lender so you lose complete eligibility in any way forgiving your loans with the government.
If you take up jobs in the public service sector and have federal student loans, you begin your repayment journey. After making 120 payments you can qualify to get your loans forgiven. This is not limited to the public service sector, teachers that work in low-income schools, doctors and nurses who work in certain states or who are currently serving or had served with the military. Learn more about Student Loan Forgiveness Programs
2) Seeking a repayment plan based on your income - These repayment plans are needed to help borrowers make payments that are affordable. If you have problems with your income then you can qualify to make low payments or even put off payments until your financially stable to start making payments.
3) Having bad credit - Most young adults don’t have good credit scores and this makes qualifying for refinancing more difficult. The most suitable thing to do is to consider getting a co-signer. Finding a good co-signer is the difficult part because they share the burden of debt with you. This is a huge responsibility.
Even if you have a low credit score you can start making on-time payments and have a good payment history. This can be shown to your refinancing lender that you are a credible borrower and they might consider you.
Refinancing is good but not knowing when to refinance is better. It is a crucial step in saving money and managing the whole payment process. In short, if you have a number of loans, a decent paying job, a good credit score (or a cosigner who does) then refinancing your loans is the best way to go about repaying your debts.
It should be noted that if you are planning to go about your repayment journey with a federal based program like income-driven repayment then it is best to stick with your current situation without refinancing. As you lose your eligibility to avail this upon refinancing.
Consolidation of student loans is nothing but combining multiple loans into a single loan, upon doing this you get a new interest rate, repayment term and more. You can consolidate your private loans or your federal loans.
The consolidation of private loans or private loans and federal loans is often referred to as refinancing. Consolidation and refinancing are often used interchangeably but they are actually completely different.
In federal student loan consolidation, you combine multiple federal student loans into a single direct federal loan. This is done through the department of education. When you consolidate your loans you get a direct loan which makes you eligible for certain loan repayment programs, it should be noted that you won’t get a lower interest rate. In case you want to start making lower payments, it is suggested to increase your repayment term.
Refinancing which is also known as private consolidation is done by a private lender. You need to look out for the qualifications to be eligible to refinance with them.
Federal student loan consolidation
Although this type of consolidation does not include any credit check it does not cut down any interest rate. The benefit here is a single loan bill and getting lower payments. You need to consider consolidating your student loans when you:
Have to consolidate your current loans to become eligible for federal benefits like income-driven repayment plans or loan forgiveness.
Want a single federal loan payment
Are currently on student loan default and want to get out
The process of federal consolidation is nothing but the government paying off your loans and replacing them with a direct consolidation loan. You will be able to do so once you graduate or when you leave school (drop below half-time enrollment).
How much will consolidating my loans cost me?
It is important to note that federal consolidation is free and one should definitely be aware of all the scams where companies charge fees to consolidate loans for you.
What will be my new interest rate?
When you consolidate your loans with the Department Of Education your new interest rate will be the weighted average of all the rates of your loans rounded up to the next 1/8th of 1%.
What will my new loan term be?
Your new loan term will range from 10 to 30 years. You can expect your repayment term to start within 60 days of when your consolidated loan is disbursed.
What is the process to consolidate my federal student loan?
In order to consolidate your federal student loans you need to first go to studentloans.gov, you will see an option called “ Complete Consolidation Loan Application and Promissory Note” which you should click on.
You will see another option called “ what do I need?” click on it. You will get a list of documents that you will have to list out. You will take around 30 minutes to fill this document out.
Follow this simple 3 step process to consolidate your student loans online:
Step1. Enter the loans you wish to consolidate
Step 2. Choose a repayment plan. You will have to choose a plan which is based on your loan balance or one that is the income-driven plan.
Step 3. Read the terms and conditions mentioned.
After filling this form one should continue making payments. Don’t stop making payments and wait for your consolidation approval. If you do you will be marked as delinquent on your loans.