How to Prioritize Your Student Loan Applications

Applying for student loans is a crucial part of the process of making the transition to college. In this article you'll find some helpful information to make you more aware of how to choose and rank your student loan applications. Schools offering Finance degrees can also be found in these popular choices.

Finding the Best Student Loan for You

Student loans are an unfortunate reality of higher education. Roughly two-thirds of graduates from 4-year institutions finish college with some student debt. Many loan options are available for individuals who need to finance their education.

Federal Dollars: A Student's Best Option

If there is one rule of thumb for securing the best financing for your college education, it is to focus first on securing federal aid. Federal loans offer the lowest interest rates and have the fewest fees attached to them. Rates are often fixed, and the terms for repayment are typically more student-friendly than private loans. Federal loans may also be eligible for income-based repayment and loan forgiveness programs.

Of federal loan offerings, Perkins loans are typically the most attractive given their low interest rate. Stafford loans are also very appealing because the federal government may subsidize interest charges for a period of time, generally the duration of a student's education. PLUS loans are another type of federal loan that allow parents to borrow money that can be used to help students pay for college.

Most students know they can qualify for federal loans by filling out the Free Application for Federal Student Aid (FAFSA). Some individuals avoid completing this application, however, because they don't think they'll be eligible for loans. On the contrary, unsubsidized Stafford loans and PLUS loans may be accessible to students of all income levels. The bottom line: before prioritizing private loan applications, fill out the FAFSA to become eligible for federal lending.

Prioritizing Private Student Loan Applications

As a rule, private student loans are more costly than federal student financing options, and they offer less favorable repayment terms. That being the case, there can be significant variations between private lending opportunities that merit a close look. Students who undergo their due diligence during the loan evaluation process are likely to enjoy significant savings in funding their education.

You may be tempted to simply fill out a lot of private loan applications to feel assured of securing the financing you'll need for college. This approach can backfire, though, because a lot of loan inquiries in a short period of time can harm your credit score. This makes evaluating and prioritizing private loan opportunities important. You may be best served by doing your homework on borrowing options and filling out, at maximum, a few applications based on some important criteria.

How much will you be able borrow? You'll want to evaluate your financing needs for college and try to determine whether you expect a given loan to sufficiently cover them. If not, you may want look for a borrowing opportunity that will allow you to fully pay higher education expenses. Most students prefer having a single, larger loan to maintaining multiple accounts with smaller dollar amounts.

What is the expected interest rate? This can be tricky because lending institutions often do not provide an interest rate until after they have completed your application. You can, however, estimate what kind of rate you're likely to receive by examining best and worst interest rates of a given lender. Know that you're unlikely to get the best rate, which only select borrowers qualify for. In fact, about half of borrowers get the worst rate a lender offers.

Is the loan fixed? Fixed interest rates allow you to know exactly what rate you'll be paying over the life of a loan. Variable interest rate loans, on the other hand, can rise (or decrease) significantly and can put you at risk for paying a lot more interest on your college education than you might anticipate. Make sure you're comfortable with this potentiality before signing up for a variable interest loan.

What chance do you have of securing a loan? If you stand no reasonable prospect of securing a particular loan, applying for it isn't recommended. To improve your odds, however, you could apply for the loan with a cosigner who has a good credit history. This has the double benefit of improving your chances of getting a better interest rate on the loan. Many students take advantage of this cost-saving measure even if they qualify on their own for a private loan.

Is a lender offering incentives? Some lenders waive loan fees, offer application rebates or feature other incentives designed to entice borrowers. One common practice is for lending organizations to offer a quarter- or half-percent interest rate cut for individuals enrolling in auto-debit programs that deduct monthly payments from a bank account. Examine details on these offers to make sure you're fully eligible before signing up for a loan.

Learn some student loan dos and don'ts for new college students.

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