![]() ![]() "Private loans can be preferable if the borrower/co-borrower qualifies for a lower interest rate than the rate on the federal loan. In some cases, private student loans can also be better than federal student loans, even if you or your parents qualify for enough funds from the federal government. So, if that's the case for the spring 2024 semester, you might turn to private student loans as a supplement. For example, if your parents are unable to obtain what's known as a Direct PLUS Loan, first-year undergraduates are limited to a maximum of $9,500 in federal student loans. While federal loans should often be used first, sometimes students need to borrow more than what they receive from the federal government. "People tend to focus on forgiveness, especially Public Service Loan Forgiveness, but the ability to change repayment plans at any time, for any reason, to provide financial flexibility is probably the most overlooked feature of federal loans," says Wang. FitBUX data shows that less than 5% of the time private loans are cheaper than federal loans in terms of having lower interest rates, he adds.įederal student loans can also be preferable for those looking to adjust their repayment plans. "Private loans tend to be variable which means you can't predict the cost post graduation and they can become very expensive," says Reinke. Plus, the fixed rate of federal student loans gives you more certainty over costs. You can easily find a private student loan online here now. As those individuals found out, rates can go up, and when you go to refinance, the fixed rates may be a lot higher," says Reinke. "In the past, I've seen some people try to 'strategically' take private variable rate loans with the idea that they would refinance post graduation to a fixed rate private loan. Rates also depend on factors like your credit score and how much you want to borrow. Interest rates and terms can vary significantly among different private student loan companies. Typically, private student loans have variable interest rates, while federal student loans have fixed interest rates once you take them out. Private student loans typically do not have application deadlines the way that federal student loans do, but you likely want to check with your school about payment deadlines to make sure you have the funds to pay for the spring semester on time. Credit scores, income, length of employment and other factors all matter here, whereas they generally don't for federal loans," explains Jack Wang, wealth advisor/college financial aid advisor at Innovative Advisory Group. "Private student loans are treated like other loans, such as mortgages and car loans. If you end up not needing the money, you have 120 days to refund the amount not needed back to the government and you are not charged origination fees or interest during that time," adds Reinke. Therefore, taking a little extra in student loan debt now would be preferable to potentially having credit card debt. "We are seeing a number of students have to take out credit card debt because they underestimated living expenses due to inflation. Congress resets interest rates every June and there is a good chance we'll see another increase in student loan rates," says Joseph Reinke, CFA, founder of FitBUX. "With federal loans, even if you do not need the full amount you qualify for, you may want to consider taking it. The deadline for the 2023-2024 academic year is June 30, 2024, though your state and/or college may have an earlier deadline, and it's generally better to apply sooner than later if you haven't already. ![]() Even if you don't qualify for financial aid in terms of lowering your financial responsibility for tuition, filling out FAFSA is how you qualify for other types of federal student loans. To apply for federal student loans, you need to submit your Free Application for Federal Student Aid (FAFSA) form.
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