Paying for Higher Education with Student Loans

Written by: Peter Tollin

Congratulations! You’ve made a big decision to go back to school. It probably wasn’t an easy decision. There are so many obstacles in your way. One of the biggest obstacles is how to pay for this higher education. Not many of us have a rich relative that can pay our way through school or are fortunate enough to earn a full scholarship to the school of our choice. For many of us, students loans are the only way we can afford to go to school.

Types of Student Loans
There are two types of student loans. Federal student loans are part of federal aid programs designed for specific needs. Federal aid programs provide support for students from certain economic backgrounds and who meet certain criteria. Private student loans provide money to students who meet specific criteria for the loan. Both federal and private student loans require borrowers to pay back monies owed by a specific time period.

Federal Student Loan criteria
In order to qualify for a federal student loan the prospective student needs to prove they are a citizen of the United States. Some immigrants can also be accepted if they can prove they are in the country legally. Citizens just need an SSN to qualify for a federal student loan. Immigrants who have a green card and other proof of identity are sometimes accepted.

Other criteria for federal student loans are graduating from an accredited high school, a GED certificate or homeschooling certificate. Students also need to be enrolled in an accredited school as some trade and colleges aren’t eligible to receive federal aid. Everyone who wants a federal student loan or other federal aid should complete the Free Application for Federal Student Aid (FAFSA).

It goes without saying that students applying for federal aid should maintain at least a 2.0 grade average while in school. Students also need to maintain either a part time or full time status.

Private Student Loan Criteria
Private lenders like the federal government require their borrowers to meet certain criteria. The criteria for certain types of loans can vary from lender to lender. An example of a private loan would be one that specifically states that the person attend the school. Another specific criterion is the ability to maintain a certain GPA in order to continue the loan.

Most four year colleges and universities have private student loans that are geared towards students that they know will succeed at the school. Some community colleges and trade schools do offer private student loans. Training loans are probably your best bet for this type of education.

Some private student loans require you to meet certain age requirements. There are some exceptions for exceptional students. Private lenders, like the federal government, do require that their prospective borrowers be US citizens or hold a green card. International students, however, can have a US citizen co-sign the loan. Monies acquired through this type of loan need to be utilized for educational purposes only.

Unlike federal student loans private loans require a good credit score in order to qualify for the loan. Private lenders look at your debt-to-income ratio, your credit history and your income. A good credit score tells the lender that you are a good risk. Your debt-to-income ratio is your tolerance to debt. If you can manage your debt wisely then a lender is more likely to lend you money.

What to look for when shopping for a student loan
Loans are money you borrow from an institution or the federal government. All institutions and the federal government charges interest on the loan. There are two main differences between federal and private student loans. These are:

  • Federal student loans offer a fixed interest rate. Most private student loans have variable interest rates.
  • Most federal student loans don’t require a credit check or co-signer for the loan. All private student loans require at the very least a credit check.

If you are thinking of getting a private student loan to supplement your federal student loan, remember to shop around for the lowest interest rate. You should also consider loans that allow you to pay back the loan without incurring any penalties. Some loan providers allow for a six month grace period while other loan providers provide support for you if you are going through financial difficulties.

Incentives for paying back loan early
Every student that comes out of school with some debt should make it a priority to pay off their student loan as quickly as possible. Institutions applaud individuals that take the initiative to pay off their student loans early. Some institutions provide good incentives for borrowers that pay off their loans quickly. These incentives include:

  • A lower interest rate
  • The ability to apply for other loans with low interest rates

The best incentives, however, are the fact that you don’t have the debt hanging over you. You also have shown to these institutions that you are a worthy borrower. It is prudent to pay off student loans so you can establish good credit. It’s even better though when you pay it off early because it shows that you handle money well.

Another good incentive for paying off your student loan early is to avoid the double whammy of taxes and interest that can occur with some student loans. When you consider how much money you are paying out in interest that could be saved, you should try to pay it off early. You can claim $250,000 of the interest you paid on your tax form. This is good for some student loans but for many people this isn’t enough incentive to keep the student loan.

Some final thoughts in regards to student loans you may take for your education. Student loans are a good way to finance education. They provide a means for people to get the education they need. They also provide you a good way to establish credit.


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Paying for Higher Education with Student Loans

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