When you are in college, it is easy to borrow a loan for studies, but you step in the real world with a real job, paying off the loan would be the worst nightmare. The student loan process seems overwhelming at first but in reality, it is always better to do a proper research before choosing a student loan.

When you enter the real world, financial challenges make everything disturbing because of the paying off the debt situation for some students or individuals may not be favorable because of the nature of their job. Not everyone is lucky enough to find a well-paying job after graduation. Hence, you need to think smartly and carefully before choosing a student loan for yourself.

Students generally choose either federal student loans, provided by the government, or private loans, provided by banks or other financial institutions. Even though with only two options it is really hard to choose because of the repayment plan. It all depends on your income, credit card history and other factors like higher monthly repayments.

This article will guide through to choose the right student loan for your stress-free future.

  • For Federal Loans

For Federal Loan, you need to fill out the application each year to be eligible for federal loans, grants, and scholarships. The government then sends a copy to the school for which you are applying for a loan. After the evaluation, the school’s financial aid office will send you a financial aid award letter.

You may be offered one or more federal loans, but here comes the tough part. You need to look at the lowest-cost options first and maximize grants, scholarships, family contributions, state aid or institutional aid.

Federal loans have fixed interest rates that are lower than private loans. There are four types of loans from which you can choose the best one for yourself.

Federal Perkins Loans is the subsidized loans with low-interest rates intended only for students with significant financial need. Interest is not charged if a student is in school half time. There is a grace period of nine months before repayment is required. But not all schools offer them.

Direct subsidized loans (aka Subsidized Stafford Loans) are for students with demonstrated financial need. Interest is not charged while a student is in school or during deferment periods, and payments are not required until after graduation.

Direct unsubsidized loans (aka Unsubsidized Stafford Loans) are not based on financial need. School decides how much you can borrow by factoring in any other financial aid and attendance costs. Interest is charged at all times and capitalizes during school and deferment periods, though you can defer payments until graduation.

Direct PLUS Loans is a credit-based, unsubsidized loans for graduate/professional students (called Grad PLUS loans) and parents of dependent undergraduates (called Parent PLUS loans) who need more money than offered by federal loans. Interest rates are higher, and there is no borrowing limit.

The federal student loan repayment depends on your income, which is defined as the amount by which your adjusted gross income exceeds the poverty line. Income based, pay as you earn and income contingent are the most common plans.

  • Income Based: Pay 10-15% of your discretionary income over a 25-year term.
  • Pay As You Earn: Pay 10% of your discretionary income over a 20-year term.
  • Income Contingent: Pay the lesser of two options, being 20% of your income over a 25-year term, or a fixed amount over a 12-year term.
  • For Private Loans

If federal loans and family contribution are not covering up everything for you then a private loan can fill in the gaps. According to the experts, for private loans, there are calculators which can determine the need and the repayment plan. If you are looking for private loans and you cannot find a better option, you can always ask your desired school to provide you with the list of private loan lenders.

A lot of student borrowers need to apply with a co-signer because they lack credit. This is not a bad aspect at all. Due to your qualified co-signer, your application process may speed up and the chances of approval get high along with the lower interest rate.

Whenever you are comparing private loans, always keep certain important factors under consideration; fees, interest rates, and terms. There are some lenders who would charge origination fees, and interest rates for private loans. That is not fixed for private loans as it is only available for federal loans.

Also, look at the number and amount of monthly payments because they will affect your total loan’s cost. If you have enough amount to repay loans while in school, it can easily reduce the cost of your loan. There are some loan providers who lend a certain amount on the basis of eligibility. They require a certain amount of hours or certain grades from school, hence you need to fulfill that requirement. Also, make sure that you educate yourself thoroughly with the interest rate discounts and repayment options.

Student loans are often complicated. It takes a lot of time for an individual to decide to choose the best option for them. But learning how the process works and the loans that are ideal to pay for the college education. Be it a federal loan or a private loan, this becomes a liability for student or a family to pay it off on time. Remember, persistence and planning are the keys. You can easily pass the phase and clear all the debts within the given time when your planning is right.

About Writer:

Alison Cerys is working as a Student Loan Advisor. Furthermore, she is an important part of many student forums where she helps students by writing dissertation writing reviews. She is extremely passionate about her work and always loves to share her guidance with others. When not working, she likes to do yoga, read novels, does cooking and photography.