Education is the foundation we all grow from. Every class that is taken is a small window into several lifetimes of studies. It makes sense that it would be difficult to figure out which subject to study, not to mention choosing classes and which dorm room is closest to the campus cafeteria. However, before all of that comes the part of college that fills everyone with dread – the cost. There’s a payment required to start these classes and to live the college dream, and for many, that means taking on a student loan.
Even the smartest student may be confused when it comes to student loans. There are so many options of different loans out there. Let’s break it down to the simplest question first – Should you apply for a federal loan or private loan?
A federal loan is provided by the federal government. This means that there are certain laws that are in place that remain constant, such as fixed interest rates and income-driven repayment plans. Another benefit to the federal loan is that payments are not due until either you change schools, graduate, or change your enrollment status to less than half-time.
A private loan can be granted by private organizations such as credit unions, banks, or state-affiliated organizations. These loans have different rules based on the establishment that is providing the loan, such as varying interest rates, payment plans, prepayment penalties, etc.
Most students find it is better to start with a federal student loan because of the flexible repayment options that will help once you graduate and have to pay it back on an entry-level salary.
Don’t forget to apply for scholarships first and only use the Federal or private loan to fill in the gaps. Understand the small print of any loan before you borrow money, and compare your options!