In today’s economy, it’s imperative to choose a student loan option that meets your needs. Failing to do so means you might be unable to make payments and end up defaulting. Keep your financial well-being in check by considering these factors before deciding on a student loan provider. Take advantage of online sites such as Purefy.com that let you compare from the best student loan companies in a simple and transparent manner.
Federal or Private
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If you meet certain income limits, you may qualify for a federal loan. There are four main kinds of federal loans:
- Perkins loans are generally for students with a lot of financial need and have a grace period of nine months after the student graduates.
- Direct subsidized loans don’t collect interest while a student is in school.
- Direct unsubsidized loans are not income-based, and therefore, interest accumulates during schooling.
- Direct PLUS loans are for graduate and professional students.
In general, federal loans come with fixed interest rates. Many people also like federal loans because of loan forgiveness programs that are available if a student goes into certain fields after graduating, such as teaching or public service.
Private loans, on the other hand, are provided by nearly every bank in the country. However, your school probably has a preferred lender list to help you narrow down your options. Private loans offer far more flexibility, but if your school closes or loses accreditation, you’ll still need to pay the money back (as opposed to federal loans, which allow a cancellation of the loan).
Interest Rate
After deciding which type of provider you’d like, the next factor to think about is the interest rate. Comparing private student loan interest rates can be tricky, which is why you should investigate several banks before finalizing your decision.
For the 2017-2018 school year, federal interest rates are between 4.45 to 7 percent, depending on the type of loan. Private loan interest rates vary between 3.35 and 5.25 percent, meaning you could possibly score a better deal through private lenders.
Repayment Term
There are several different kinds of repayment terms you can enter into for a student loan. Generally, the shorter the repayment term, the higher your monthly payment will be. On the flip side, if you choose a longer repayment term, your payments will be smaller, but you’ll be paying much more in interest over the life of the loan.
For student loans, the most common repayment term is 10 years, as this offers a happy medium between affordable monthly payments and accrued interest over the life of the loan. If you have a stable income and are guaranteed to have a good job when you graduate, you might even consider a five-year loan just so you can pay off the debt faster.
Keep in mind that you can usually pay off a loan early by paying extra each month, but some providers don’t allow this. Always check this point before accepting a loan.
Student loans are often a necessary evil if you want to get a college education. However, with a little homework into which loan is right for you, the process can be smooth and simple.