Take out federal student loans first, as they often have lower interest rates and more flexible repayment options. If you still need to borrow more, then consider private student loans from a reputable lender.
Extensive response
When it comes to student loans, it can be overwhelming to know where to start. Here’s a more detailed answer to the question “What student loans should I take out?”
Firstly, it’s generally recommended to take out federal student loans before considering private student loans. Federal student loans often have lower interest rates and more flexible repayment options. You should fill out the Free Application for Federal Student Aid (FAFSA) to determine your eligibility for federal student loans, as well as other forms of financial aid.
There are two types of federal student loans: subsidized and unsubsidized. Subsidized loans are based on financial need and do not accumulate interest while you’re in school or during deferment periods. Unsubsidized loans are not based on financial need and begin accumulating interest as soon as they’re disbursed.
Private student loans, on the other hand, are offered by banks, credit unions, and other financial institutions. These loans should only be considered after you’ve exhausted all federal loan options, as they often have higher interest rates and fewer borrower protections than federal loans.
When selecting a private student loan, it’s important to do your research and choose a reputable lender. Look for a lender with a history of good customer service, competitive interest rates, and flexible repayment options. You may also want to see if the lender offers any incentives, such as interest rate reductions for on-time payments or automatic payments.
In the words of financial expert Dave Ramsey, “Never, ever, ever cosign a loan. Any loan.” It’s important to consider the long-term financial impact of taking on student loan debt, as it can affect your ability to achieve other financial goals, such as buying a home or saving for retirement.
Lastly, here’s a comparison table of federal and private student loans to help you make an informed decision:
| Federal Student Loans | Private Student Loans |
|---|---|
| Lower interest rates | Higher interest rates |
| More flexible repayment options | Fewer borrower protections |
| Based on financial need (subsidized) or not (unsubsidized) | Credit score and income verification required |
| Can be consolidated and forgiven in certain circumstances | Limited repayment assistance programs |
| No cosigner required | Cosigner may be required for better interest rates |
Remember, always do your research and carefully consider your options before taking on student loan debt.
Associated video
In the video “What Everyone’s Getting Wrong About Student Loans,” John Green explains that average student debt amounts can be misleading. While 65% of graduates with loans have an average debt of $28,000, the average debt for any borrower is actually $39,000. This is because graduate school loans, particularly for law and medical school, significantly contribute to the total debt amount. Additionally, 40% of students with loans do not receive a degree, and often face financial pressures that lead to dropping out and struggling with loan delinquency.
See more answers I found
Avoid PLUS loans, as they have higher interest rates (31% in 2017) and high origination fees (4.276%).
- Start with Subsidized Direct Loans and Perkins Loans if you qualify (must demonstrate financial need).
It’s usually better for students to take out student loans themselves, rather than parents taking out loans on behalf of their child. But every situation is different and it’s up to each family to determine the right move for them. Here’s an overview of student and parent student loans to help you make your decision.
More intriguing questions on the topic
For most student borrowers, federal Direct loans are the better option. They almost always cost less and are easier to repay. (This may not be the case if you are a parent or graduate student considering federal PLUS loans, though.)
Similar
Whether you’ve got federal or private student loans (or a combination of both), here are acceptable education expenses that you can use your loan money for: Books and supplies. Room and board (meal plans, food, etc.) Off-campus housing (rent, utilities, etc.)