For most people getting student loans is a pretty easy process. You fill out some paperwork, sign your name, and before you know it, tuition is paid in full. Unfortunately, getting the right student loans is not so simple. Repayment plans, interest rates, fees and cosigners make navigating the student loan landscape a dangerous place. Fortunately, taking the time to do a little research can ensure that you and your family are protected from student loan nightmares.
Step #1: Make sure you actually want a student loan
In many cases, the best student loan is no student loan at all. Student loan debt is a huge financial obligation, bankruptcy is almost never an option, and employment is never a guarantee. Everybody goes to college planning on getting a job and making more money, but not everyone succeeds in this endeavor. Before you get a single student loan make sure you have applied for every grant and scholarship that you possibly qualify for. Make sure you are at the right school and not being overcharged for a degree that doesn’t mean much on the job market. Finally, be certain you have a Plan A, Plan B, and Plan C in mind for paying back your debt.
If you understand the consequences of the debt and are certain it is the right step for you, proceed to step number two…
Step #2: Federal Loans First
The easiest loans to get are also the best loans to have. Federal loans have the best repayment plans, and the best protections against future troubles. They are not perfect, but they are a far better option than any private loan.
In order to get the federal loans, all you have to do is fill out the FAFSA. Keep in mind that there is no danger of your parents making too much money for the FAFSA to apply to you. This is a lazy excuse to avoid some paperwork and the student loan equivalent of flushing money down the toilet. Everybody, regardless of personal/family income qualifies for federal student loans. As these loans are the best, smart students know that you should max out your federal loans before you even consider private loans.
If you have completed your FAFSA and the federal loans will not be sufficient, proceed to step number three…
Step #3: Private Loans
When you hear stories about how student loans have ruined the lives of people, it is because of private loans 9 out of 10 times. As a result great care should go into your private loan decision.
Some factors to consider include:
- Interest Rates – Obviously you want a low interest rate, but you also need to weigh fixed vs. variable interest rates. With interest rates currently at fairly low levels, a fixed rate loan is probably preferable.
- Repayment Plans – Do you have 5 years or 25 years to pay off your loan? How much will your payment be each month? What happens if you lose your job? These are questions you should be able to answer before you take out any loan.
- Fees – If you get a private loan, make sure you aren’t being charged for any “origination” fees or similar expenses that inflate the loan balance. Reputable lenders have stopped charging these fees. There is no reason for you to pay extra to borrow money, the interest rates should be the sole source of income for your lender.
Many borrowers will have trouble getting a private loan on their own. A credit history and steady income is not something that most college students have. As a result, co-signers often get involved with private student loans. If a co-signer can be avoided, it is worth it, even if it means a higher interest rate. If you are thinking about having someone cosign a loan for you, there are many things that they need to consider, and depending upon the loans that you have, you should think about getting life insurance.
Research, research, research. There is a ton of information available about student loans, though not all of it is necessarily good, it is important you do the work to find the facts. We have reviewed many student loans, but your very best bet is to talk to someone who has been trying to pay off their loans for a year or two. Learn about the mistakes they made and seek their advice. Make sure you don’t come to regret the decision you make.