Borrowing Money for College

Benefits to Your Bottom Line

Student loans are one of the best ways to pay for college. Now, you should always try to exhaust all other options first—you know, the ones you don’t have to pay back. That is not to say student loans are not a great financial aid option. They’re fantastic, really, but you should always go for the free stuff first. Grants, scholarships and personal savings don’t need to be repaid, but often don’t cover all the necessary college costs.

That’s where the student loan comes into play. If you need financial assistance in order to pay for college yet have exhausted all other forms of aid, utilize student loans.

College Loan Terms: Plain Good Deals

So many people hate borrowing money and rightfully so! Every time you take out a loan, you are taking a serious risk and making a serious commitment. Unlike regular loans, student loans have special terms that make them easier to afford and a more reasonable commitment for young college students. Many college students are not exactly the ideal borrowers. They often have little to no credit at all.

Good News: student loans, particularly Federal loans, are great alternatives to standard loans. They offer low interest rates, interest-only or deferred payments while you’re in school, 6 month grace periods before repayment begins and lenient repayment plans that are unlike anything included with any other kind of loan.

College Student Loans Are Flexible

You won’t find more flexibility in a loan than you will with a Federal student loan. By are the most forgiving federal loan is the subsidized Stafford Loan. Students approved for the subsidized version are not responsible for the loan interest while in school; the federal government pays that. Stafford Loans in general offer very low interest rates with no credit checks required. Almost every student qualifies for subsidized or unsubsidized Stafford Loans, and in some cases both.

Private student loans also carry some level of flexibility with them, especially when it comes to cosigners. While a credit check is required for private student loans, your parent or guardian can cosign with you, allowing you to reap the benefits of their good credit.

Low Fees on Student Loans

Borrowing directly from a lender that specializes in student loans offers benefits as well. Student loan providers tailor their products and services especially for college students—they build a loan package for you.

  • Federal Family Education Loans such as the Stafford Loan and PLUS Loans have little room for customization—they are fairly standard across the board so you know every student loan lender is offering you a fair deal.
  • Private student loans for undergrads as well as special grad loans often come bundled with fees. Even in these instances lenders may offer borrower incentives that include discounted fees and release of co-signors.

College Loans and Low Interest Rates

Student loans, particularly federal loans, have rock bottom interest rates. You can’t get any better borrowing deals than with a Stafford loan. These are guaranteed by the federal government and are need-based.

Leverage low interest rates and fees on private student loans when you borrow with excellent credit or with a co-borrower that has excellent credit. Then make sure you make every payment on time. Good payment practices can lead to reduced rates and release of co-signors. But don’t expect any private student loan to match the benefits of a Stafford.

When Student Loans are Subsidized

Another great facet of student loans, especially federal, is that they may be subsidized. Subsidized Stafford Loans are for students with financial need determined by their FAFSA. The government subsidizes the loan and pays the interest for you while you’re in school. This is a key difference between federal loans and private loans. Even though private loans offer numerous benefits, you just can’t compete with the subsidized federal student loan.

Student Loans and Borrower Incentives

When you choose a student loan lender often you’ll discover a few little borrower incentives attached to your student loans. Private student loans commonly come packaged with incentives—they are designed to attract borrowers.

  • When you opt for automatic loan payments deducted from your checking account, some lenders may offer a slightly discounted interest rate.
  • Another common incentive typical of student loans is an interest rate deduction after so many months of timely payments. The length of time is usually around 48 months. So, if you make your payments each and every month and are never late and never miss, then you may very well receive a reduction in your interest rate.

College Student Loans Help Build Credit

Another thing that is definitely a benefit of student loans is that they are a fantastic way for young people to build credit. Now, I know it’s tempting to sign up for those credit card offers you get in the mail, but with 21% interest rates, you’re not doing yourself or your credit any good by signing your name on the dotted line. Avoid high-interest credit cards and opt to build credit with your student loans.

  • Interest rates on student loans are low and make repayment more affordable.
  • Borrow with a co-signor and once you’ve made 48 consecutive on-time payments many lenders will release your co-borrower. This means you build your credit and take full responsibility for your student loan.