Student loans differ from credit cards in that their payments and forbearance terms can be set upfront, making planning ahead essential in finding the optimal rates and terms.
Before borrowing money for college costs, consider options to lower them like work-study and saving for tuition fees. Also look for loans with flexible repayment terms – private lenders usually allow cosigner release after making several on-time payments.
1. The Federal Direct Loan Program
The Federal Direct Loan Program offers low-interest loans to students and parents to cover postsecondary education costs. Unlike private student loans issued by banks or lenders, federal student loans feature lower interest rates and more flexible repayment plans; deferment is possible while in school, grace period or unemployment; plus eligibility can be applied for income driven repayment plans or public service loan forgiveness programs.
Loans awarded based on financial need as determined by your school using data from your Free Application for Federal Student Aid (FAFSA) form are awarded under these programs, allowing students to borrow up to their annual cost of attendance minus estimated financial aid assistance and expenses minus estimated financial assistance, with both subsidized and unsubsidized direct loans available to undergraduate students, while parents or graduate students can take advantage of the Federal PLUS Loan Program; students must sign a promissory note committing them under certain terms and conditions for repayment of these loans before receiving them.
2. The Federal Perkins Loan Program
The Federal Perkins Loan Program offers low-interest, subsidized student loans to assist students who demonstrate exceptional financial need pay for postsecondary education. Perkins Loans are funded with both school and government funds – unlike Direct Loans which come directly from ED – Perkins Loans are repaid through your school.
If you have a Perkins Loan, be aware of its nine-month grace period before repayment is required. It is crucial that during this timeframe, interest payments remain current to avoid loan default and serious credit ramifications. If making payments is becoming difficult for any reason there may be options such as deferment or forbearance available to you which you should discuss with your loan servicer and explore; in certain instances consolidation could help consolidate student debt into manageable installments.
3. The Private Education Loan Program
Private student loans are offered by individual lenders instead of the government and typically carry higher interest rates than federal student loans. Furthermore, some private loan providers also charge fees for disbursement and repayment which may add up quickly; be sure to read carefully through any agreements or fine print before selecting your lender.
Private loan borrowers typically need a co-signer (usually their parent) in order to be approved. Lenders typically conduct credit checks and require students enrolled in at least one class before offering these loans.
Most students should only consider private loan options after exhausting all available federal options, since federal loans offer lower interest rates and more favorable terms than private ones, as well as being subsidized by the government during enrollment or deferment periods. Private loans do not have income-based repayment plans or forgiveness programs like those found with federal student loans – nor does CUNY endorse any particular private loan provider.
4. The Parent Loan Program
Parents can borrow for their child’s education using a Federal Parent Student Loan. Borrowers with such loans assume full responsibility for repayment compared to cosigning student loans which share equal responsibility between two people.
Parents eligible for this type of student loan include biological or adoptive parents of an undergraduate student enrolled at least half-time at an eligible school, although grandparents and stepparents do not qualify.
Federal loans that are unsubsidized accrue interest while students are in school and during any deferment or forbearance periods. Federal loans generally cost less than private loans and offer more flexible repayment plans such as income-driven repayment plans. If you have substantial student debt, it is recommended that you meet with a credit counselor to explore your options and develop an affordable repayment strategy – counseling may even be free or low cost; you can locate one through either the National Foundation for Credit Counseling or Financial Counseling Association of America.