Questions to Ask Yourself - And Your School - Before Taking Out a Loan
As a college student, it’s tough to make informed decisions about student loans. But the choices you make when you enter college may affect you for most of your adult life. Here are a few questions you should ask your college financial aid office and private lenders when considering taking out a student loan.
What is the amount of the loan?
Don’t borrow more than you need. For government student loans, you’ll usually receive a fixed rate depending on your income level. For private student loans, you can borrow as much as the bank is willing to lend you—and that will probably depend on your credit history and their repayment plan.
Once you’ve received all the federal aid, in grants and loans, that you can possibly qualify for, you’ll need to fill the gaps with a private loan. Your school may give you an “expected contribution” amount that may or may not include private loans; borrow as little as you can to avoid extra interest expenses later.
How long do I have to pay off the loan?
Don’t get stuck with a surprise bill when you graduate from college. Enter school with a solid knowledge of the loans you carry, their terms, and how much you’ll need to pay per month once you graduate.
How much is the interest?
And does it accumulate while I’m in school? Government loans have interest rates as low as 4.6%, depending on the year and the type of loan. Stafford loans do not accumulate interest while you’re in school, but other types of loans, both federal and private student loans, do accumulate interest before you graduate college. Be sure you know how much interest will accumulate on each of your loans while in school, and how much you’ll be expected to pay per month when you graduate—on all of them.
Is the interest fixed or variable?
Many federal student loans have fixed interest rates, which means once you’re given an interest rate, it won’t change. Some federal loans and most private loans offer variable rates—which mean the interest rates will change based on market demand or the company’s whim. In the case of private loans, interest rates can go up drastically and usually the fine print allows for that.
When talking to a bank or school about student loans, before you accept a financial aid package, ask about the lowest interest rate and fee combination available, how you can get that rate, and how long that period lasts. Some loans carry a low introductory rate that goes up later. If you’re considering a variable rate loan, ask whether there’s a limit on the amount the interest can be raised. Ask how often the interest rate is adjusted and how the interest is determined.
Do I have a grace period after graduation?
All unsubsidized and subsidized federal loans (except for PLUS loans) allow you a grace period of at least six months after graduation, dropping out of school, or going from full-time to less than half-time enrollment. Private loans may or may not give you a grace period. If your loan is subsidized, your interest won’t accumulate during the grace period; if it’s unsubsidized or private, it will.
What happens if I can’t pay the loan back?
Federal student loans are notoriously difficult—usually impossible—to discharge. But there are deferment options as well as the Income-Based Repayment Plan. Private loans operate under the discretion of the lender. When going for private loans, ask what happens if you experience economic hardship—whether you’re allowed to temporarily defer or reducing student loan debt payments, the circumstances required, and the time period allowed.
How can I reduce the amount I have to borrow?
This is a good question to ask your school’s financial aid office. Check to see if there are any work/study opportunities or other options you have to reduce the amount of money you’ll owe after graduation. Ask what you can do once you’re on campus to lessen your debt load.
Don’t get stuck with a surprise bill when you graduate from college. Enter school with a solid knowledge of the loans you carry, their terms, and how much you’ll need to pay per month once you graduate. With this knowledge, you’re more likely to graduate with control over your financial future.
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- Peer-to-Peer Student Loans: What They Are, and How They Can Help You Pay for College
- If You're Unable to Work Because of a Disability: What Happens to Your Student Loan?
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- Having Trouble Repaying Loans? The Department of Education May Be in Touch