25Jan
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Borrowing Money

In a shaky economy with an unstable job market, it’s more important than ever before that those students planning their higher education take every precaution necessary to borrow money wisely.

There are many different types of loans, and each loan comes with a unique set of rules, regulations, and expectations. While most schools require students to pass a basic loan comprehension test before allowing them to borrow money from federal lenders, answering a few questions correctly does not a wise lender make, and anyone planning to borrowing money federally or privately should have a solid understanding of what kind of loan they’re getting before they enter into any financial agreement.

Basic types of loans:

1. Student Loan

Issued by the federal government, student loans are a significant responsibility. They are the one variety of debt that cannot be waved by declaring bankruptcy. As a matter of fact, the only way to avoid repaying a government issued student loan is to die. If that’s a little morbid for your taste, consider carefully whether the education you plan to fund with this type of loan will provide you with steady employment and empower you to repay those loans without too much trouble.

Student loans do have a number of benefits, which is why they tend to be so popular amongst the young people who apply for them. First, they don’t tend to require a credit check like other loans, so for young people with limited credit history, or none at all, they are still a viable option. Second, student loans usually offer low and fixed interest rates, which make repayment easier for a student just entering the job market. Third, student loans come with a built in deferment period that lasts six months or more after the student graduates. This grace period also helps make repayment less of a burden and worry.

2. Parent Loan

For students lucky enough to have willing parents, the parent loan sometimes called the PLUS loan is quite clearly the best option. Similar to the student loan, but with the burden of repayment responsibility resting squarely on the shoulders of the student’s parents, it’s a great deal for a student, especially a younger student whose parents want to help with college payment. With a parent loan, the student receives the money, and can assist with repayment, but any negligence or late payments are the parent’s responsibility.

3. Private Loans

A loan option that can be utilized by parents or students, the private loan is often employed to subsidize federal loans. Private loans come with benefits and disadvantages, most notably the variable interest rate, which is likely to increase (sometimes dramatically) over time, as compared to the fixed interest rate offered by a federal loan. For students will already well established and excellent credit, the private loan can be a good option, but the credit standards are usually more rigorous for loans of this nature, so a co-signor is often necessary for students who don’t have a well established credit history, or who already have credit card debt.

Determining which loan is the right loan is one of the most important decisions a student will make. Being aware of the choices and learning everything about the options will ensure a future without regrets.

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