Please forgive me if my questions are dumb. I am 18 and a freshman in college, and my mother just bailed on the payment for my second semester. I need to take out a loan ASAP, and my father is willing to co-sign. I have done some very basic research, and have a few questions. I have read that it can be very bad to consolidate federal and private loans. In my case, for this semester I owe just under $11,500 and I receive $5,500 in federal loans; I would have to take out the rest in private loans. Would consolidation be worth it in my case, in order to get private loans with a low interest rate? I’m not sure I’d ever reach the point of debt forgiveness for the federal loan as I think I could pay that off in relatively good time. Also, at this point in time, what are “good” interest rates? I need, but don’t really have, a scale to go by when trying to determine if interest rates for a specific lender are too high. And finally, does employment/income matter when applying for student loans for an undergrad student?
May 3, 2014
First of all… no need to apologize for asking questions. Its much better to ask questions now than it is to find out years from now that you messed things up.
Generally, I suggest people start out with federal student loans. It is impossible to know what the future holds, so having those federal protections is usually a good insurance policy.
If the federal loans are not enough, private loans come into play. For the private loans, credit score and debt-to-income ratios matter. This is why many college students are forced to get a cosigner on these loans. A “good” interest rate is definitely a relative term and it really depends upon a number of factors. The key to getting a “good” rate is to shop around and check your rate with a number of different lenders. Then pick the lender with the best rate.
As far as private consolidation goes, this is something that you normally look at after graduation. It really doesn’t make sense to go this route in school, and it may not even be possible.
Finally, you will also want to watch your total borrowing very carefully. Make sure you will be able to afford all of your student loan payments when you graduate. Just because you are able to borrow the money, it does not mean it is a good idea. A simplified rule of thumb is that your total debt level at graduation should be less than your expected first year salary. If the debt is looking like it will be bigger, it might be time to look at another major or a different school.
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