Maybe you didn’t get a grant or monies from a merit scholarship from the college you are attending. These are worth their weight in gold because these monies do not have to be paid back. Some of you may have gotten loans offered by your college in your financial aid package. These are also good because they do not have to be paid back until you have finished college, and their interest rates are very low, usually under 3%. Most of you, despite your financial aid, will still have to pay money to cover your college costs, money neither you nor your parents have. That’s when you and your parents will have to shop for private loans.
Private loans vary. They are all gotten from lending institutions and have to be paid back monthly from the time of your receiving the loan. Here are some private loan options.
The Stafford Loan
The Stafford loan is a government-backed loan, but is not subsidized like the Stafford loans you might have received in your financial aid package. Students who are claimed by their parents as dependents can get an unsubsidized Stafford loan of up to $31,000 at a fixed-rate interest of 3.4% to 6.8%. These loans must be co-signed. Parents can also get a Stafford loan at a fixed rate starting at 7.9%.
Variable Rate Student Loans
These loans are directly from a private lending institution. Again, payment begins immediately, and the rates are usually low. The interest on a variable loan can be between 3.5% and 9.9%. If you agree to payment within a short period of time, say 6 months, you can even get a variable rate for as low as 2.89%. The problem here is if prime interest rates go up, you could be hit with huge monthly payments until the rate goes down. Also, because your monthly payment can vary month to month, it may be hard to budget for repaying such loans.
Fixed-rate Student Loans
More and more banks are now offering fixed-rate loans for students. The rates are a bit higher than variable-interest rate loans. They can range from 6.55% to14.25%, depending on credit scores, collateral, and employment of the parent or co-signer. The down side is these loans are 10 to 15 year loans so you sacrifice short payoff time for reasonable monthly payment guarantees.
Sometimes the only way a college is affordable is when you borrow money, despite financial aid packages. There are a number of online resources that allow you to search, compare, and find the right student loan for you. Make sure you take advantage of them. Be careful to understand what you can afford in monthly payments and over how long you want to pay back the loan. Both you and your parents will have to agree on the amount of indebtedness you can both handle.