Completing your university education is a very important but expensive choice. If you want to study and attend university, you need to pay for college by taking a student loan. An education loan is a good investment for your future, but still, a loan is just a loan that needs to be paid with interest rates. And since you will be choosing a student loan, you will be required to repay the loan after you graduate.

Thus, it is very important that you carefully think about the total loan amount that you wish to take out from the lenders and also which loan you should choose. Make sure that you take these aspects into consideration after you determine loan amount.

 

 

Evaluating The Different Non-Loan Options

In the most common conditions, funds for your school come from these 3 main sources: Free Money (grants, scholarship); Earned Money (work-study or a job) and finally, Borrowed Money (loans). You need a clear financial sense before you accept any of these three money options.

Although, before you choose the right student loan and how much money you should take out as loan, make it your first priority to secure your free money. This will ensure that you don’t have to repay your loan later. This includes both, scholarships and federal grants. Any amount of money that you don’t have to repay will only reduce your total loan amount which you wish to take from a lender.

For instance, try and apply for the Pell Grants that are federal grants offered to undergraduates, students (with financial needs and have not yet earned their bachelor’s degree or other courses). With this loan, you can receive a maximum of $6,195 for the years 2019-2020, for the time period between July 1, 2019 and June 20 2020. Also, unlike a student loan, you do not have to repay the Pell Grant.

Whether you think you will or will not qualify for the federal grant, make sure you apply for it because this will only start the process of applying for other financial grants and loans. Carefully fill and submit a Free Application for Federal Student Aid (FAFSA) form for applying a loan, work-study, or a Pell Grant.

Always remember that even if you do not qualify for the Pell Grant, you can get aid for paying your school’s fee with the help of scholarships and grants. Scholarships, like Pell Grants are gifts that do not need to be repaid. There are several schools, non-profit organizations and even private firms that offer such merit based and income based scholarships and grants. These scholarships can range from several hundred dollars to the full cost of your tuition fee. Hence, it is absolutely worth applying for these grants and scholarships.

Finalize An Amount That You Can Earn

After securing your free money, the second best option to reduce your total loan amount is to work and earn money for your school or university. Try and get yourself a job and work it off in the summer or during your college breaks or even work and study throughout the year under the federal student aid program which allows students to do part-time jobs while going to school and earn whatever amount you can to pay off any part of the total student loan.

This may however not cover all your school expenses, but can at least help reduce the total loan amount by paying off part of your tuition fee or your living expenses.

Important Note: Consider participating in the AmeriCorps program instead of working a job or a work-study plan to cover your tuition costs for a few months or semesters.

Plan Your Budget

The thumb rule to follow when you are borrowing a loan is to take only that little amount of loan that you require to finish your school. All you need to do is to check the estimated cost given by the university to get a better understanding. But, there are many students who live at a lower amount than that estimated by the university. Thus, it’s better to create a budget, more like a plan, on how to wisely spend your loan money that fairly gives an idea about the approximate financial aid, actual costs or the income earned by the student.

Start your planning by summing up your estimated monthly education costs:

– Tuition
– Transportation
– Books
– Rent
– Utilities
– Entertainment/ dining costs

While estimating these above mentioned expenses, keep the main factors such as cost of living, school expenses, school’s location, expected graduation date, borrowing needs, etc. into consideration.

Once done, add the equivalent monthly amount that has already been secured to cover these expenses, such as:

– Grants
– Money earned from Work
– Scholarships
– Personal savings

Now, subtract this second figure from the first one to get a rough idea of how much money you actually need to borrow on a regular monthly basis. Just knowing about the college budget will help you to learn about the total money that you need to bring in from your financial aid or your income against the money that you need to spend on your student loans.

Estimate The Money To Spend on Student Loans

From the previous step, multiply the monthly calculated amount by the total number of months that you plan to stay in school for determining the baseline of the total amount that you should take out as your student loan. Also, make sure that you do not keep the amount too close or else you might just fall short at times to make unexpected expenses. Also, you do not wish to live a very extravagant life as that would only make you borrow more money as your loan.

Consider Your Future Income

When you estimate your loan amount, you do not need to accept the total money that you qualify for. And you shouldn’t, especially if you think that your future income will be insufficient to pay back your loan amount.

In fact, it is only sensible that you research a little about the starting income of graduates working in your field who are using the same resources as your concerned school’s educational center. This will help you have a clear picture about how much income you can expect yourself to earn after you graduate. Also, consider re-adjusting the amount that you plan to take as a loan in order to ensure that you will be able to comfortably pay back the loan with the help of your future pay.

Select the Type of Loan

The type of loan that you choose is as important as the amount of loan that you take from your lender. Well, in fact the loan amount is highly influenced by the type of loan you choose. Thus, it is best that you prefer to choose a federal loan against a private loan.

Federal loans that comprise of the Direct Subsidized Loans, the Direct Unsubsidized Loans as well as the Direct PLUS Loans prove to be more beneficial for the graduate and specialized students in comparison to the private loans in reference to the below mentioned services:

– Fixed Rates: The fixed rates, in most cases are lower than the private loan interest rates.

– Beneficial Payment terms: Includes the income-driven loan repayment terms.

– Ability to schedule payments: The loan allows you to take your time and start repayment only after you have graduated from school. On the other hand, private loans make you pay right after you take the loan, even when you are in school.

– No Credit Score Check: The Federal loans don’t require you to go through a credit check for its application or qualification. On the contrary, in a private loan, the lender makes sure that you go through a thorough credit check.

– Loan Forgiveness: This is one of the most important benefits of the federal loan. Under this condition, a student who has taken a federal loan can have his loan forgiven, but after a period of time. This benefit is however, never offered in a private loan.

– Subsidy Eligibility: A borrower who needs financial aid can easily qualify for the federal subsidized loans under which the government itself pays the interest rates on the loan when the student is enrolled at least half time into a course. On the other hand, a private loan is mostly unsubsidized and it means that you will not get any aid in paying your interest rates while you are still in school. Thus, if you are looking for loans, make sure that you take a subsidized loan first and only later choose an un-subsidized loan, but only if it is really necessary.

– Easy to apply: Applying for a federal loan is very easy. You can apply for it using the same FAFSA application that is used for the Pell Grant. On the other hand, you need to apply to a financial aid office or directly to a financial lender to gain a private student loan.

In most cases, a federal student loan is more than sufficient to meet with their university needs. So, if you opt for a federal loan, the loan amount that you can borrow is restricted by a special type of loan that you choose to take on. According to the terms, an undergraduate can borrow between $5,500 and $12,500 in a year under the Direct Subsidized Loans or the Direct Unsubsidized loans based on how many years of school are left and hence, their dependency status. But if you are a graduate or even a specialized student, you can then take a loan of up to $20,500 from the Direct Unsubsidized Loans. The Direct PLUS Loans are also a good option for things that are not covered by the financial aid.

For students who are going to the Ivy League colleges or medical schools, then they will surely require a private loan, apart from the federal loan. In such cases, the student needs to be extra cautious about the loan amount that you borrow from the private lenders due to their comparatively higher interest rates.

Evaluate Your Repayment

Now that you have complete knowledge about student loans, and you make your pick, calculate your monthly loan payments, the amount that you will be paying back for your loan. Use a Repayment Estimator, available on the website of U.S. Department of Education, to calculate this amount. Once you punch down your figures, the calculator will give you an estimated loan payment amount based on the repayment options, thus allowing you to decide which plan is ideal for your requirements.

Also, before you get details about your loan’s proceeds, you are required to complete an entrance counseling only to ensure that you very well understand the importance of repaying a loan. Additionally, you will also be requested to sign a Master Promissory Note, wherein you must agree to all their mentioned loan terms.