Student loans can help cover the cost of your education when your aid package falls short. Keep reading to learn more about federal loans, private loans, peer-to-peer loans and family loans.
Federal loans are the most common education loans. They’re available from the Federal Student Aid office of the U.S. Department of Education. These loans frequently offer more favorable terms than private loans or peer-to-peer loans. You’ll find four loan options through the federal government. Direct Subsidized loans are available to students who demonstrate financial need. Other federal loans include the Direct PLUS loan, available to graduate students and to parents of dependent students and the Direct Consolidation loan. Students who cannot demonstrate financial need can also apply for unsubsidized loans. Finally, the Federal Perkins loan is offered to students with exceptional financial need.
Private student loans offered by banks are similar to federal loans but tend to have less favorable terms. For example, interest rates are often higher and grace periods (periods when no payments are due) are usually non-existent. Getting a private student loan can also be more difficult because the loans are given out by banks rather than the government. Banks will check your credit score and may not approve your loan application if you are having financial difficulties. Despite the drawbacks, private bank loans can be a good way to fund your education. The key is to compare lenders and find the loan with the most favorable terms. In addition to banks, you can also find private loans through state agencies or colleges and universities.
Peer-to-peer loans let you borrow money from people you don’t know without going through a financial institution. To get one of these loans, you’ll need to sign up for a site like Prosper or Lending Club and post a listing showing the amount you want to borrow. Investors will then review your listing and decide to make an investment. Depending on which site you use, investors might choose the interest rate you’ll pay through a bidding process or the site will determine the interest rate. You receive the money you need and investors earn returns on their money through the interest you pay.
A final loan option for students involves borrowing from family. If you do borrow from a family member, you should consider drawing up an official contract. This will eliminate confusion about the loan terms for both of you. Even though this loan is being made by a member of your family, you should expect them to charge interest. You can find calculators online that will help you figure out monthly payments when it’s time to pay back the loan. In addition, online resources are available that can track payments and send out reminders.