Choosing the right student loan can seem like a daunting task. In order to get the right amount of money, and the best interest rates, you need to do a bit of shopping around instead of just choosing the first one you see. Student loans come in all shapes and sizes. Let’s take a look at some of the key things to consider when choosing student loans.
1. Interest rates
The first thing to note about interest rates on student loans is that they can either be fixed or variable. If they’re fixed, the interest rate won’t change over time. But if they’re variable, they can. This is important as you could end up paying different amounts of interest each year.
If you choose a subsidized federal student loan, with a fixed interest rate, the federal government pays the interest while you’re still in school. If it’s a Direct PLUS loan, you will pay interest while you’re in school. The rate is fixed until you pay it off too, between 2.95% and 9.15%. For private loans, variable interest rates can range from 1.02% to 12.37%.
2. Fees you might have to pay
Along with interest rates, there may be other fees associated with your chosen student loan. These are usually quoted as a percentage of the total loan amount. The fee usually comes off the amount of money you receive per payment, so you pay the fees automatically.
For federal loans, fees can range from 1.057% to 4.228%, depending on whether it’s subsidized or not. Loan arrangements may also have late payment fees to think about when it’s time to start paying it back. So, it’s vital that you always repay your student loans on time!
3. Maximum loan amount
The third thing to consider when choosing between student loans is the loan amount itself. The maximum amount of money you can borrow depends on a number of factors. These include your credit score, your degree type and which year of school you’re in.
With a federal loan, most undergraduates can borrow between $5,500 and $12,500 per year. Postgraduates are generally able to borrow up to $20,500 per year. Loan amounts for private options vary just as much. There are options for as little as $1,000 up to the full cost of your tuition, so they often offer more flexibility at the cost of higher interest rates.
4. Repaying your student loans
While the above factors will contribute to how you repay your student loan, it’s also important to consider the repayment terms. Most loans, both federal and private, will offer a 6-month grace period for undergraduate loans.
While private loans tend to be less flexible in terms of repayments, federal loans offer a bit more wiggle room for those facing financial hardship. If you’re in the world of teaching, military service or other public services, there may be debt forgiveness options available to you. So, it’s always worth checking if you’re eligible to have some of your student loan debt forgiven and make sure you clean up your credit report.