Low Interest Student Loan Advice!

Are you young, college-bound, fabulous, and financially challenged? You’re in the best of company. Currently, the main issues on the minds of college-aged voters are twofold: What’s going to happen with the economy? And how will I get a student loan so I can continue my education? What exactly does a $700 billion bailout mean to the average college student? With the ongoing economic crisis that is practically the only topic of conversation these days, students have reason to be concerned. But don’t worry too much. You may have to do some real detective work to find the right lending institution for you, but you’ll get there. Here are answers to the questions most students are asking.

How does the $700 billion bailout affect me as a student?

If you’re a college student, you’re probably confused. Everyone seems to be very anxious about something happening on Wall Street, but what do stocks and bonds mean to someone who is decades from retirement? You might have a sense that you're supposed to be worrying about the way the Dow has been plummeting, but really, what does it have to do with you? The answer is, the current financial crisis makes it harder for anyone to borrow money. You will have to think ahead, plan, and above all, make wiser choices. You’re in college, you’re smart enough to figure this out. First, work as much as you can while you’re in college. Second, curtail your credit card use. And third, when you’re borrowing, make absolutely sure you understand the terms of the loan and how you’ll be expected to repay it. A great many student loans are not forgiven, even if you file bankruptcy. Your chances of actually defaulting on a student loan are very remote. Think it over very carefully and don’t be stuck with a payment you can’t make ten years down the road. 
The good news is that federally-backed student loan funds will still be out there for you, although the loan process might be more difficult. Be very cautious about borrowing from a private lender. 

What’s the difference between a private student loan and a federally backed student loan?

A private student loan—one you apply for through your local bank—is now harder to receive because they are becoming less profitable for smaller lenders. These loans can be so paperwork-intensive that smaller lenders have to send the paperwork to a larger institution for processing. A private loan is ideally used to supplement a federal student loan, as private loans always come with a higher interest rate. Those rates might be jumping to as high as 14%, up from 10-11%, which could add at least 50% in interest to a $20,000 debt with a 20-year term. More than 30 private lending institutions have suspended their student loan programs. That’s why it’s smarter to borrow privately-loaned money for smaller amounts only. Private loans are a lot like a mortgage or a credit card debt. The interest rates can vary, which could put the borrower into a financial bind down the road. That is why it’s recommended that you try to get a federally-backed student loan first. This entire economic debaucle can be blamed at least in part on consumers’ inability to understand the amount of interest they must pay on the money they borrowed. Don’t fall into this trap. You’ll probably have to get your parents to co-sign for you. 
A federally-backed loan is a better route. These loans have lower interest rates and are often (but not always) subsidized, which means that while you’re in school, you’ll get a break on interest rates. You have quite a few options, if you qualify, which these days is the hard part. Check out Stafford loans, Perkins loans, the Federal Family Education Loan Programs (FFELP), Parent Loans for Undergraduate Students (PLUS) and quite a few others. Interest rates are attractively low, especially for the subsidized loan programs. There are limits to the amount you can borrow, and there’s a six-month grace period after graduation until you have to begin repaying the loan. 

What if I don’t have a good credit record?

The Stafford loan does not have good credit requirements and does not do a credit check on you. Federal Stafford loans are available regardless of family income, have a fixed interest rate, and a lot of repayment options. Try that, but if your credit is poor, go for credit counseling at any bank and ask for help in improving your credit. 

What if I need more than the maximum I can get through a Stafford loan?

Talk to your college and ask if they have any federal Perkins loans or other scholarship or grant options for a student in your position. If they don’t have Perkins funds available, there is an option for future teachers called the TEACH grant. If you might be a teacher and you have good grades, the TEACH grant is a type of Stafford loan, and you might qualify.