You’ve got an acceptance to the college of your choice. You’ve got some money, maybe some from savings, some from family and some from a scholarship, but it isn’t enough. Like many others, you probably need to take out a student loan as well, but how do you choose the right one?

Know What You Need

How much money do you need? Your initial answer might be something like “a lot”, but you need to be specific. You don’t want to borrow more than you need. You also don’t want to end up in a situation where you can’t pay for a semester because you didn’t borrow enough. Consider not just the cost of tuition but books, housing, and other living costs, such as food. Remember that your education over four years you’ll also need to do things like buy clothes and get haircuts.

Understand Your Options

What is available to you will vary based on where you live. Some states and some nonprofits offer low interest or even no interest loans, but this may not apply in your area. In general, you should know that wherever you are, federal and private loans are both available. Federal options may be direct subsidized or direct unsubsidized. The former are need-based and waive interest as long as you are in school. 

Another option is Direct PLUS loans, which are available to parents, graduate students, and those in professional school, such as law students. Like private options, these require a credit check. Borrowing privately may require someone to co-sign for you unless you already have a credit record yourself. Keep in mind that even if you end up with a loan that has a higher interest rate, you may be able to refinance it later. Refinancing can be a great way to save money in the long run as you seek to become financially stable.

Federal Versus Private

There are advantages and disadvantages to both types, and most end up with a mix of both. While there are certain protections associated with going the federal route, a drawback is that if you default on payments for a certain time, the government can garnish your tax refunds or Social Security payments. There is also a low ceiling for how much you can borrow. Private lenders can be crucial in making up the difference.

Choosing Among Private Lenders

While you may be offered multiple federal loans and you can choose whether to accept them, that part is straightforward since you are still dealing with just one lender. When it comes to private lenders, the choice can be daunting. The internet has expanded the possibilities way beyond the banks in your hometown, but the choice can seem overwhelming. You may feel as though your head is swimming from looking at various online lenders, credit unions, and banks and are still no closer to understanding what you should look for.

Start by working with the financial aid office at your school. You may need a letter from your school letting the lender know you have additional financial needs. You may also want to talk to family members about whether they can co-sign for you. Try to look for offers with the lowest interest rates. Consider what your payment will be each month and what options are available for repayment. In addition, keep in mind that applying with many different lenders can affect your credit score. The best way to avoid this hurting your chances is to try to keep your applications over a very short period. You may feel tempted to throw up your hands and put everything on a credit card, but this can cost you more thanks to high interest rates, which keep continuing to rise.

Keep Reasonable Numbers

In some professional programs, such as medicine and law, students graduate with hefty debts from the costs of their education. However, because these professions pay well, while they may be tightening their belts for a few years after graduation, these students can be assured of the ability to pay off the debts and eventually earn a substantial income. Be sure that what you borrow is proportionate to your future earnings based on your degree. This will help ensure that you can follow the repayment schedule that you agree to.

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Last Update: February 22, 2023