Student Loan Pitfalls
College is not cheap. Fortunately, it is easy to obtain a college student loan to cover the costs of getting your college education. Unfortunately, while college student loans can remove the financial barrier to attending college, they can also come back to bite those who failed to properly research all the many available options.
There are three primary kinds of college student loans: federal college student loans that are made directly to the student, federal college student loans made to the college student’s parents, and college student loans from private financial institutions.
The three primary kinds of college student loans will all carry different payment schedules, loan limits and interest rates, so it is important to choose wisely based on your specific needs and abilities to repay the college student loan. There will be no worse feeling than to graduate college ready to take on the world, only to realize you will be doing so with the burden of a hefty monthly college student loan payment.
If you have already saved money to pay for most or even part of your college, or, will be able to earn enough during your college years to cover some of the costs, then a direct federal college student loan is probably your best option.
Federal college student loans made directly to the college student will have a modest limit, preventing the accumulation of an over whelming debt. Furthermore, depending on your financial situation, the government can subsidize a federal college student loan by doing away with the interest all together.
Going with a direct federal college student loan could mean a busier lifestyle during college, especially if you will have to work long hours to make up the difference, but the far more manageable student loan payments following graduation are sure to make it all worth while.
The mane benefit of a federal college student loan made to your parents is the ability to borrow a much more substantial amount of money, making this type of student loan a natural choice if you will be attending a particularly expensive college.
However, payments on a federal college student loan to a college student’s parents must begin immediately, and the legal responsibility for repayment rests on the parents alone. Federal college student loans to parents also carry a larger interest rate of 8.5%.
Private college student loans offer the best of both types of federal college student loans with their higher limits and the ability to start repaying only after you have graduated. However, private college student loans are also one of the easiest ways to accidentally build up a huge debt that could take the next 20 years after you have graduated to pay off.
Private college student loan applications can be processed fast and require little if any proof of the actual need for the amount requested, making a private college student loan by far the most popular method of financing your college education. As a result, a growing number of financial institutions are offering competitive college student loan packages.
The fast application process and lack of lending safeguards are what can lead to trouble with a private college student loan. Additional funds are borrowed for what may seem like a good idea at the time, but later prove to be an unnecessary temporary luxury leaving only more debt.
Private college student loans are not a bad way of financing your college, but they should be entered into with caution and research.
