Gazing upon your upcoming college years from a distance can leave you full of wonder, like a wide-eyed child ready to tear through the aisles of a candy store. But even with a handful of lollipops and malt balls, the foreboding check-out line still awaits as you exit the shop. The idea, of course, is to not leave the store paying for more than you can actually afford — and taking out a student loan is no different.
The beginning of your loan-taking process is fairly simple: Complete your Free Application for Federal Student Aid (FAFSA) as accurately and quickly as possible, assuming you’ve already exhausted your family’s resources for your education. Ultimately, there’s a mile-long laundry list of reasons why a student should first explore the federal student loan program, but it might be beneficial to highlight just a few stand-out points that keep things to the point:
- Leniency. Unlike private loans, federal student loans do not require a credit check, which can make or break the loan process for credit-less students who may not have a willing co-signer. Beyond this, federal loans are much easier to place into deferment or forbearance status upon entering a post-grad financial bind, something incredibly uncommon with private loan companies more than willing to track down their money like sharks catching a whiff of blood.
- Incentives. Not only may interest be tax deductible with federal loans, but also federal loans are capable of being forgiven if you decide to seek employment in the public service sector. The Federal student loan program also offers the possibility of loan consolidation — that is, the combination of federal loans into one a single payment per month, generally making payments smaller but more stretched out.
- Lower interest rates. Placed at a fixed interest rate, federal loans have a lower interest rate when compared to the variable interest rates (rates that fluctuate depending on the market) of private loans, many of which are accepted with a “pay as you go” agreement, meaning you will pay off parts of your loan while you attend school. This is not the case with federal loans, which expect repayment to begin six months after you graduate from school, leave, or assume a half-time status.
I’m frequently asked by students which method of repayment to embrace with their loans, but the reality is that there is no cookie-cutter answer to creating the ideal repayment cycle. Successfully repaying different types of loans is all about finding payment amounts that work with the student’s financial situation.
Among these options are extended repayment, consolidation of loans, graduation repayment, income-contingent repayment (specifically for Direct Loan borrowers), or a standard repayment option that will require the least amount of interest payments in the long run. The key take-away, however, is that options are available.
And in regards to student loan effects on credit, as long as payments are made on time, a borrower’s credit should be just fine.
Dorothy Gilliard is the vice president of student financial services for Lincoln College, where her primary responsibility is to provide leadership and direction for the company’s corporate and campus financial aid offices, including the delivery of all federal, state, and private funds to Lincoln College students.