The excitement right before your freshman year starts really is an intense experience. There are so many things to do, ranging from planning your trip to choosing your majors. The real thrill-killer, though, is realizing how much high education costs and thinking about how you are going to pay all those bills.
If you don’t have the money, the alternative is to apply and get a loan. According to The Institute of College Access & Success, that’s what 66% of the students do every year. Getting a student loan is not something you should take lightly. The more you know about the loans, the smarter decision you’ll be able to make.
Here are four things you should know before applying for a student loan.
Know your alternatives
Most students know about federal loans. It’s because they are the more popular type of loan. Application is also quite fast and simple. All you have to do is complete the application documentation and wait for a reply. These loans are also more popular because you don’t need to have a credit score to qualify for them.
Plus, they have income-driven repayment plans. Unfortunately, a federal loan is capped, and you might need more money. This is why you should know about the alternative, which is getting a private loan.
Many students don’t consider them because they think a cosigner is a must-have. But there are plenty of private loans without a cosigner requirement. This is a viable option if you figure out you’ll be maxing out the federal aid.
Take fees and interests into account
Your financial future will depend on the type of loan you get. The most important thing to know is that you don’t owe what you borrowed. What you’ll owe is, in fact, what you borrowed + fees + interests. It goes to both federal and private loans.
What you should pay attention to is the small print in the loan papers. Look for the loan fee and loan interest rate. A loan fee is something you are required to pay only once. Unlike the fee, the loan interest rate accrues daily. The interest rate is added to the total amount you owe.
The federal loan fees and interest rates are updated every year, and they are easy to find. Private loans rates are not fixed, and they depend on your credit history. Nevertheless, if you need to get a private loan, consider your options to get a loan that you can afford in the long run.
Don’t bite off more than you can chew
Taking a student loan is probably going to be your first experience with debt. It can help you learn responsibility and thorough planning, the qualities that will help you keep your finances in order. The most important lesson to learn is not to borrow more than you actually need. Why? Because the more you borrow, the more you will have to pay back, including fees and interest rates.
The granted federal loan amount you can borrow depends on your ability to pay, while the granted private loan amount depends on your credit history and ability to pay. Your goal should be to borrow only the amount you need, which you can find out by requesting information from the university.
It will make your loan payments easier to keep up with and help you avoid late payment fees and other penalties for skipping payments. The rule of the thumb is to keep payments at approximately 10% of your after-tax monthly income.
The process is completely automatic
You don’t have to worry about going to the bank to get money and rushing back to the university to give them cash. The process is completely automatic. What does it imply? When your loan application is approved, you will have to sign a master promissory note. It simply states that you agree to repay the loan.
The financial aid office is in charge of processing your loan. The loan is immediately applied to your student account. If you have any leftover money, it will be refunded to you so you can use it to cover other expenses.
While we are at the expenses, student loan is one of those purpose-specific loans. You won’t be able to use the loan money as you please. You can only use it for education-related expenses.
Getting a student loan doesn’t have to be something that confuses, or even worse, frightens you. All the information you need is out there. All you have to do is use it and make an informed decision. The more time you spend researching, the easier it’ll be for you to make the right choice.