Seven Things You Should Know Before You Take Out a Student Loan

The student loan market these days is a complicated affair. When you're getting into the business of funding education, it's best to do your research and know what you'll be dealing with. Besides the government's numerous options, there are hundreds of other places you can look to procure funding for your education. Private loans, school-specific backed loans, and parent loans are great options for those who don't have all of their bases covered. Imagine the breadth of medical or chiropractic student loan debt; consolidation only begins to cover how much they will owe. So it is good to have an idea before starting how much you'll owe, to whom, and how you'll get that money. Before stepping into the volatile field of student loans though, there are seven things you should know:

1. Approach financial aid as something of a race. The earlier you decide which schools you are applying to and send in your FAFSA information, the earlier you will be considered for financial aid. A school will calculate what they believe you will need financially in a given year and subtract what they believe you can pay towards that total. If they misjudge, give yourself the time to contact them and discuss it. It's not impossible to offer explanation and proof that you do not have the resources they assume you do. Federal Loans are better that private loans, but they are limited - You need to

2. Talk to your parents carefully about cosigning- Many parents might be wary of offering their signatures to a promissory note for your student loans. However, that simple act can save you thousands in interest and debt when you graduate. By doing your research thoroughly and exhausting other options, you can broach the topic and have a careful conversation with them about a PLUS (Parent Loan for Undergraduate Students) Loan before you are left with no choice but to take a private loan.

3. Interest rates are variable - Do your research when you take student loans. You should understand what the interest rate is, how much money you are allowed to borrow and how much interest you will be paying in 10 years by borrowing that money. In 2003, the student loan rate was as low as 1.5%. Today it is 6.5%. It's also helpful to keep track of rates for the sake of consolidation. If rates are looking to go up a significant amount, you'll want to know early. July 1st every year, the Treasury Bill is used as a reference point for those changes. Especially if you're graduating soon, know what the rate will be when that happens. If you take a private student loan, the rates might be even different. Even with student loan consolidation with a company like ACS or Great Lakes, you might find you're looking at very different rates.

4. Stafford Loans Are Limited - Your best bet when entering school is the Stafford Loan, a federal loan program that offers undergraduates direct loans based on financial need. Your first year in school though as a freshman, you are limited to a loan of no more than $2625. However, if you remain in school until you are a Junior and Senior that amount rises to $5500. Therefore, if you decide to take a private loan to cover the difference your first two years in school, remember that you can increase your Stafford Loan as an upper classman. Once again an ACS or Great Lakes student loan, consolidation or no, is going to affect your finances much different than the rather fixed Stafford loans.

5. Subsidized vs. Unsubsidized - For financial need, the government will offer you subsidized Stafford Loans right away. These are the best, because the government pays the interest on your loans while you are in school and are given based on financial need. For those who are not fully covered by the subsidized loan they receive, they may receive the rest in unsubsidized funds. Combined, subsidized and unsubsidized student loans cannot exceed the yearly maximum. Be wary of taking the unsubsidized loan though unless you absolutely must as interest accrues immediately. You are not required to pay any of the loans until after graduation, but if you take a $2000 unsubsidized loan in your freshman year, and won't be paying any payments for four years, you're looking at hundreds of extra dollars in interest that you wouldn't otherwise have to pay.

6. Check for School Specific Funding Such as a Perkins Loan - Schools themselves will offer small loans to students based on financial need. These Perkins Loans are set a low 5% fixed interest rate and offer a chance to round out your financial need with Stafford loans. Often included in your financial aid package, these are good options because they have much fewer restrictions such as "full time student status" than the Stafford loan options. They are similarly limited in total disbursal though, and often act as supplemental funding rather than catchall. Beyond the Perkins loan as a secondary loan, you can also look into a PLUS (Parent Loan for Undergraduate Students) Loan to be cosigned by your parents.

7. Private Student Loans are Different - If you approach a private institute for a student loan, you must remember that you will not receive the same terms as a federal loan. The interest rates are subject to variance over the life of the loan, meaning they could rise substantially over time. You are also subject to a credit check, meaning your parents' signature is almost assuredly required. However, you are guaranteed the ability to borrow up to the maximum value of your tuition and the funds are available to use for anything you need them for, education related. The most important thing about the private student loan programs out there is that they are often backed by any number of financial institutes. Do your research, expect variance, and be ready to offer whatever paperwork and time filling it out you'll need. When consolidating, you might find yourself looking into private institutes as well. Great Lakes or ACS student loan consolidation as mentioned above are good starting points, but look around as well and do your research.

Deciding to take a student loan is an important financial decision that marks the beginning of your life on your own. It requires not only the knowledge of the system you're borrowing into, but an understanding of how you'll go about paying it back. The student loan program, whether you work with the government or a private institution, is the first financial decision you're likely to make in your adult life and needs to be properly researched. The funds are out there.

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