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Steps to take before signing a loan agreement
For students searching
for college funding, navigating the wide world
of student loans is a task almost as difficult
as college itself.
To make sure your deal truly is as good as it looks
on paper, here are the most important steps
a student should take before signing a loan
agreement.
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| 4 steps to take
before signing |
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As a rising number of students
turn to loans to help them foot hefty tuition
bills, the number of lenders, loan packages
and financing options has grown as well, giving
students a greater challenge when it comes
to finding the best loan deal. The National
Center for Education Statistics reports that
more than two-thirds of all four-year undergraduate
students take out loans in order to fund their
educations.
Go
to the feds first
Despite the rise of lenders from every corner
of the nation, Uncle Sam is still the largest
provider of both free and borrowed cash for
students. Before contacting private lenders,
students should fill out the Free
Application for Federal Student Aid to
see what type of federal aid they can land.
The information on this application will determine
the expected family contribution, or EFC.
The "free" money is in the form
of grants,
such as a Pell
Grant or a Supplemental
Educational Opportunity Grant , or SEOG.
Only after students have exhausted
their free money possibilities should they
seek loans, again turning to the federal government
first. "Federal loans are safer and almost
always cheaper than private loans," says
Lauren Asher, associate director of the Project
on Student Debt. "(Federal loans) come
with some borrower protections, fixed interest
rates, possibility for deferral."
Federal Stafford
and Perkins
loans have low fixed interest rates of 6.8
percent and 5 percent, respectively. These
are significantly lower than private loan
rates, which typically hover around 11 percent,
says Justin Draeger, assistant director of
communications for the National Association
of Student Financial Aid Administrators. Additionally,
Draeger says, federal student loans aren't
tied to credit history, giving students with
little to no credit the same access to college
funding as their wealthier counterparts.
If you aren't eligible for a
federal loan, you'll have to research private
loans carefully. "Private loans are
a whole other matter," Asher says. "The
terms can change, the interest rates can fluctuate,
the interest costs can quickly surpass whatever
you borrowed, and they can be branded in ways
that can be hard to tell what you borrowed."
Students can begin their research using Bankrate.com's student loan rate comparison, which is updated weekly.
Enlist the parents
Before turning to private lenders, try turning
to your parents instead. The federally funded
Parent Loan for Undergraduate Students, or
PLUS
loan, allows parents to borrow funds for
their child's education. Like the Stafford
and Perkins loans, PLUS loans have a capped
interest rate (at 8.5 percent); maintain many
of the same borrower protections, including
deferred payment until after graduation, and
are available regardless of financial need.
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