meet zoe. zoe is a high school senior that has beenaccepted into five colleges. she’s very excited. however, she’s also a little bit confused. she sees several types of student loans inthe award letters, and doesn’t really know
Lowest Student Loan Consolidation, what to do with them. what should she do? well, beyond watching our other introductoryloan videos, “loans 101†and “loans: mistakes and best practicesâ€, zoe shouldfirst read carefully through her award letter.
this document, which details the aid she wasawarded, also tells her exactly what she needs to do to get her loan, including how to signthe loan contract, called the master promissory note, and whether or not she needs to do entrancecounseling, which is a brief, free online course in student loan management. then assuming, zoe has done all that, hernext step is actually quite simple: understand how federal student loans work. the most common ones are called direct loans,also known as stafford loans. these have a fixed interest rate of 4.29%as of 2016 and a loan amount dependent on your need.
they also have a rather unusual wrinkle: theycan either be subsidized or unsubsidized. subsidized loans don’t start accruing interestor require their holders to pay back principal until 6 months after graduation. this can make them financially a great deal,though accordingly they’re reserved for students who demonstrate greater financialneed. in contrast to this, unsubsidized staffordloans are available to all students, with principal payments that are also deferreduntil six months after you graduate. however, unlike subsidized stafford loans,interest continues to accrue on these loans while the holder is in college.
thus, if you can, we highly recommend youpay off this accrued interest before it's added to the balance six months post graduation. after all, the last thing you want to do ispay interest on your interest. so that’s stafford loans. however, they’re two other major types offederal student loans: perkins loans and direct plus loans. perkins loans have extremely favorable terms:a fixed 5% apr and no interest and principal charged until nine months after graduation. while this is certainly great, keep in mindto qualify for a perkins loan you’ll need
to demonstrate exceptional financial needon your fafsa. finally, we have direct plus loans, whichare either given to graduate students or to the parents of undergraduates. direct plus loans are designed to cover thedifference between the cost of attendance and the financial aid received. like stafford loans, they have deferred paymentsuntil six months after graduation, unless you’re a parent, in which case you’llhave to request it, with interest that accrues throughout college in either case. finally, if for whatever reason federal studentloans aren’t enough to cover zoe’s tuition
costs, zoe can also apply for private studentloans, most likely with her parents as cosigners. these loans can be a good financing solution,and our recommended provider makes it easy to get multiple private student loan offerswith one simple application. however, be warned, private student loansaren’t nearly as favorable as federal ones. their interest rates are frequently higher,plus they require a credit score of at least 650 and lack many other benefits, such asincome based repayment plans. hopefully you and zoe now have a better understandingof student loans. be sure to watch our next video to learn moreabout repaying your federal student loans, and be sure to check out our website, whereyou can find outside scholarships, private
student loans, and more educational content.
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