Student loans, part 1: You have options

We’re breaking down the types of student loans that may be available to you.

Welcome to the first of our three-part series about student loans! As we mentioned before, student loans can be quite a headache for current students and graduates alike. Taking out a student loan is a decision that can follow you for over a decade and affect your adult life. Making an informed decision can make all the difference in your financial life. Our goal for the next three weeks is to help you understand your options and to decide if getting a student loan is worth it for you. do decide to use them, we’re here to help you plan to pay them off so they don’t live with you forever.

First of all, you need to figure out how much money you will need to successfully enter the career you want. This amount will depend on many factors, such as your university selection, career choice, whether you’ll need to relocate or not, and many other factors. You must also factor in the expenses such as books, other supplies for your classes, and living expenses.

Another important factor to consider is where to get the loan. You don’t want to commit to paying more money than you have to. You have two choices: a federal-backed, government loan or a private lender.

A government loan is the easier of the two to get. The federal government is able to lend up to $12,000 annually. A good place to start is with the . Under this program, you have four different types of loans you can get: Direct Subsidized Loans (DSL), Direct Unsubsidized Loans (DUL), Direct PLUS Loans (DPL) and Direct Consolidation Loans (DCL). The amount of money that you can get will depend on your status as a student, if you are a graduate or undergraduate student, or even if you are a parent. One positive side to this kind of loan is that you don’t have to start paying right away: you can start repaying after you finish college. But let’s go a little deeper into these options.

If you’re an undergraduate student and you can demonstrate that you will need financial aid to cover the cost of college, or career school for example, then the DSL is the best option for you. You can qualify for between $5,000 and $12,500 per year, depending on what year you are in school and your financial dependency. The good thing about this type of loan is that the U.S. Department of Education pays the interest under these three circumstances: while you’re in school at least half-time, during the so-called “grace period” (i.e. the first six months after you leave school), and finally, during a period of deferment (a postponement of loan payments). This is a very good option to start with. Not having to think about interest will take a great weight off your shoulders, especially if you find yourself in a position where you can’t keep up with the payments or if you don’t land a job immediately after you graduate.

The second-best option is the direct unsubsidized loan (DUL). There are two very important qualifications to keep in mind. First, you don’t need to demonstrate financial need, and second, and most importantly, you will have to pay the interest. In the event you can’t keep up with the payments, the interest will be added to your initial loan.

In both cases, your school’s financial aid office will determine the final amount you will be granted based on the school year you’re in and whether you’re an independent or a dependent student, among other factors. The interest rates for these loans are 2.75% for undergraduates, and 4.30% for graduates.

Now, let’s explore our last two government or federal loan options. The Direct PLUS loan is for two different groups: it is specifically for graduate and professional students and also for parents of dependent undergraduate students who are not able to cover the educational expenses by other financial aid. In this case, you won’t have to prove a financial need, but you will be required to undergo a credit check. You might also find this kind of credit under the name of “Parent PLUS” or “Grad PLUS”, depending on who is applying. Just so you know, as a graduate or professional student you can get up to $20,000. In this case, the rate of interest is 5.30%.

Our last option is the Direct Consolidation Loan (DCL). This loan allows you to combine all your federal loans into one. The upside of this is having only one payment a month, instead of many small payments. Another upside to this option is that it will allow you access to additional loan repayment plans. But here’s the best part: it will also give you access to loan forgiveness programs! Which, believe me, will come in handy in the future.

With all this information, I’m sure you’re overwhelmed and asking yourself how do I access all this goodness? ☺ Well, thankfully, it’s pretty easy. You simply have to submit the FAFSA: the Free Application for Federal Student Aid. The information will be used by your school to determine how much money or financial aid is available to you

Finally, you also have the option of getting a loan from a private lender. In this case, there are many lenders, many options, many differences and many terms, too. The loans will vary, in most cases, depending on the degree you’re planning to pursue.

The terms of the loan you’re getting or the repayment period can range from five to more than 20 years for private student loans. Of course, shorter loans will have higher monthly payments and lower interest rates, which will give you a lower total cost in the end. However, longer loan terms have lower monthly payments, which might sound good and be the only option in some cases, but will carry higher interest rates and higher total costs.

I cannot stress this enough: please pay attention to the interest rate on your student loans. This can make the difference between you paying your loan in 10 years or if you will become the crazy aunt in the basement for the next 30 years. Lenders can offer student loans two types of rates: fixed or variable. In many cases, you may not be able to switch your interest rate type after taking out a loan, so please pay attention and take your time while considering your options.

Hopefully, all this information hasn’t scared you off. Ideally, we all would like to not have to take out student loans and be debt-free in the first place. With that being said, please consider looking into scholarships and grants BEFORE you commit yourself to student loans. There are literally thousands of scholarships and grants available every year, and you do not always have to be a perfect student to apply and receive them. However, if you happen to find yourself in a situation wherein it’s your only option to a good education, then you now have all the information you need to get started.

The next article in this series will give you interesting options on how to pay off your loans, as well as how to make some extra money. Like we said, this might sound scary, confusing, and make you rethink all your decisions moving forward, but don’t worry. Most of us have been through this and we’re here to help you make the best decision for you and your financial future.