Compare Student Loan Options | How to Pay for College

By : Andrew Shultz    99 or more times read
Submitted 2009-12-23 11:21:29
College education cost is rising faster than inflation. This increase is college cost can cause a serious financial problem for students and their parents. Even with long term planning tools and saving vehicle such as 529 plans, your savings may fall short when your child is ready to attend college. To bridge the gap between your available savings and actual cost of college education, there are two main type of financial products available. These are federal student loans and private student loans.

It is important to understand that Private Student Loans and Federal Student Loans are different financial products. For example, Federal Student Loans are based on income and needs while Private Student Loans are available to anyone as long as credit requirements set by lending institution are met.

Federal Student Loans
As the name suggests, Federal Student Aid or Federal Student Loan programs are provided by the federal government to fund the higher education for a student who otherwise could not afford to pay for it. It comprises not only loans, but also other forms of aid, in which the applicant may be qualified. Federal student loans are not credit based meaning that any student can apply for this type of federal aid even though he/she has a bad credit or no credit record at all. However, if you have had any past student loans and you failed to pay them, your credit will be taken into consideration.

Federal Student Loan applicatoin process starts with an application for Federal Student Aid. After a couple of weeks, the student will receive a Student Aid Report or SAR by mail. SAR is an important piece of data because it outlines the mode and amount of payment with the APR on your loan as set by the federal formula. SAR report is followed by an award letter, also by mail, stating the details of the aid the student will receive from the government. The aid directly goes to the school to be used for payment of tuition fees or accepted personally by sending the award letter back. One important thing to remember here is that not all students qualify for a federal student loan. In case when students are unable to qualify for a federal student loan, private student loan may be another option. Many lenders offer private student loans and the rate of interest vary greatly.

Private Student Loans
As pointed out earlier, not all students qualify for federal student loans. If a student is unable to get a federal student loan of financial aid, private student loans can help you finance your education. Private Student Loans are also known as Alternative Education Loans, and can help bridge the gap between the actual cost of your education and the contribution from financial aid. Private student loans are sources of funds for education provided by private lending entities, such as banks, community groups or credit unions. The main difference of this loan agreement compared to the federal aid is the weight of credit history. Private student loans are just like any other commercial loan product taking into consideration the credit history of the applicant to determine eligibility for the loan. In the event that the student has a bad credit record, the lending agency will require a cosigner having a good credit.

Private student loans can help you cover expenses not met by federal financial aid. In addition to tuition and room and board, private student loans can be used to cover virtually any school related expense. Private Student Loans allow you flexibility to apply whenever you need additional money during your time as a student. These loans are also available quickly, sometime within a matter of days after you complete your loan application. These loans can also be used for a wide variety of expenses such as tuition and fees, room and board, transportation and books and school supplies.

Private student loans are available to anyone without a need-based formula. So anyone can apply and get approved as long as you meet the credit standards of the lender.

Private Student Loans vs. Federal Student Loans - Final Verdict
Whether you apply for a Federal Student Loan or Private Student Loan, you have to keep in mind that any education loan has to be repaid. This is true even if you don't finish school, are unhappy with the education you received or are unable to find a job, or you're making less money than you planned. So borrow wisely now, because the amount of money you borrow now will have long-term effects that can influence your lifestyle!

Planning for the long term
Once you're ready to graduate, don't forget about the student loans that you've racked up. Also, you probably still have a few months left before your grace period ends and you have to start worrying about repaying your loans. But if college has taught you anything, it's that time flies. Why not take a minute right now to think about student loan consolidation? It might help lower your monthly payments and simplify your life in the future. Remember, not everyone qualifies for student loan consolidation and only the borrowers who are currently in their grace or repayment period and who owe money on eligible federal student loans are eligible.
Students enrolled in school at least part-time, if they have a Direct Loan Program loan or attend a Direct Loan school are also eligible. And here is the final thought - Even though loan consolidation can truly simplify and help many students manage their monthly payments, there are some cases when consolidation may not be right for you. So choose wisely.


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