3 things you need to understand when evaluating your student loan
Updated on October 19, 2020
If you’re thinking of attending college but don’t have enough funds to cover your expenses, student loans can make all the difference. With student loans, you can receive the financial aid you need for your college education, allowing you to focus on your learning.
However, with so many loan options available, you may feel overwhelmed. Here are three things you need to understand about student loans that can help you make the best decision for your situation.
1. Federal student loans offer unique benefits, but to a point
Generally, federal student loans are the cheapest option. Unfortunately, they have a hard cap as to how much you can borrow. For instance, as a freshman, you can’t borrow more than $5,500 in direct loans, and the maximum amount you can borrow to finance your undergraduate degree is $57,000 for independent borrowers and $31,000 for dependent borrowers.
Luckily, federal student loans offer numerous benefits, such as:
• They have various student repayment plans that can be adjusted based on your earnings
• You don’t need a credit history to qualify for a loan
• They have low fixed interest rates
2. Federal student loans might not be enough
Since there’s a limit as to how much you can borrow, federal student loans may not be enough to cover your expenses. You may have to find other alternatives like scholarships, grants, or even getting a part-time job. You can also cut down on your expenses to maximize your student loan use.
3. You may need a cosigner
While most federal student loans don’t require a cosigner, there’s one exception. When you apply for a Direct PLUS loan and your credit is poor, you may need a cosigner. A cosigner takes over your student loan payments if you default.
Problems with loan repayments can affect your relationship with your cosigner. It’s wise to select your cosigner carefully and ensure they understand the terms of your agreement.
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