How-To Evaluate Various Student Loan Options

How-To Evaluate Various Student Loan Options

Today, it is almost impossible to get a job or even get an interview without some form of advanced education. Whether you go to a four-year school, a two-year school or seek vocational training, you will most likely need help paying for that education. While student loans can represent an investment in yourself, how do you know whether a particular loan is right for you?

Should You Go With Private or Federal Loans?

There are pros and cons of both private and federal student loans. For example, a private lender generally will not renegotiate its loan terms and may not allow you to extend the term of your loan. However, private lenders do have to abide by statutes of limitation on loans that are not repaid. This means that these loans may be discharged through bankruptcy even though student loans are generally not eligible for discharge. Alternatively, federal loan terms can be extended fairly easily, but the government has the power to garnish wages or benefits until the day that you die.

How Much Should You Take Out?

When you borrow money for graduate school, you may be entitled to as much money as you may need to pay for tuition and living expenses if you take out a federal loan. However, just because you can borrow money doesn’t mean that you should. Ideally, you will borrow no more than the cost of tuition, and you should consider making payments¬†while you are in school to reduce the interest that accrues.

Will You Need a Cosigner?

If you are under the age of 21, there is a good chance that you will need a cosigner. This person is responsible for making payments on the loan or repaying the loan balance in full if you decide to file for bankruptcy or pass away. Ideally, you don’t want to have to find a cosigner when you apply for financial aid. When it comes to federal loans, your interest rate is not significantly higher if you don’t have a cosigner compared to if you do. Depending on who your loan provider is, you may be able to release this person of his or her responsibility.

Do You Qualify for Income-Based Repayments?

Federal loans have a feature that may cap your payments based on your discretionary income. For those who make less than the poverty line, they may pay nothing each month toward their federal loans regardless of how large their balance is. After 25 years, the remaining balance is forgiven. However, it is important to understand that the forgiven balance is considered taxable income.

Student loans should not be taken out lightly. You need to have a plan to repay them or at least know what options you have should you run into financial issues. This will ensure that you get the money that you need to improve your skills now while ensuring that your loans don’t drive you into poverty later.


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