Federal Loans Are Best
The best sources for loans for most students and families are in the federal loan programs operated by the U.S. Department of Education. They offer direct loans to students, subsidized loans to needy students, and Perkins loans through the educational institutions. Unsubsidized federal direct loans have replaced the Stafford loan program and are open to any student.
Loans and Student Fund Priorities
One can view private loans as a less preferred option to other forms of aid. Scholarships and grants do not require repayment, federal loans offer flexibility and subsidized interest payments. Other options include work-study programs and employer contributions; some employers offer full or partial reimbursement for coursework that relates to the employer’s business. Military service can include education benefits such as loans and scholarships. However, for those who have unmet needs after using federal loans, or who cannot qualify for federal loans, private loans are an excellent source of funds. For example, federal loans have annual limits and an overall limit; federal loan eligibility requires maintenance of a minimum grade point average. Persons outside of federal eligibility can turn to the private sector.
Sources of Private Loans
Family loans are a frequent source of loans for college. Family members can structure loans in terms, interest rates and repayment schedules. Banks, credit unions, private companies, and lending institutions offer student loans to qualified borrowers. The rates and terms vary and usually depend on assets and credit scores. Most lenders offer some form of deferment until the student completes his or her course of study. However, some lenders require repayment to begin immediately. Credit unions and employer-based loan programs offer terms based on the relationship with the lender and should be considered. Many private lenders offer lower monthly payments than federal loans, and this is in part due to their ability to extend the repayment over longer periods of time than permitted in the federal loan programs. However, the low initial payments and interest rates are not guaranteed, and lenders can change them over the course of the loan.
Care Is Needed
When searching for private student loans, students and their families must exercise caution and use judgment to assess the benefits and costs. Many lenders require co-signors, and this can expose life savings and principal assets like homes and property to risk in the event of default. Education holds promise for higher income and bright future. However, it does not come with guarantees. One should borrow and co-sign with a view of all of the possible outcomes.
Asset Based Loans
Life Insurance policies have cash or loan value; a 401(k) usually offers a short term loan benefit. A Roth IRA permits advances within the first five years for things like a first home or education expense. Investment portfolios and real estate holdings are excellent assets for use in providing student loans. Among the advantages of private loans, are a more limited exposure to personal information and financial assets. The FAFSA application reaches into nearly all of the applicants financial aspects whereas a private loan application involves exposure to one source, and it may not require as much information to base a loan decision.