Student loan choices can make a real difference in both cost and convenience. Federal loans usually have lower interest rates than private loans and also offer the most flexible repayment plans. There are loan forgiveness programs for federal loan, in which a portion of your loan is repaid at no cost to you, based on the work you do after college. Two popular forgiveness programs include Teacher Loan Forgiveness and Public Service Loan Forgiveness, though there are others.
That said, once federal loan limits are maxed out, private loans may be your only choice for attending a certain school. As long as you pick the right loan for the right reasons, accepting a private loan can be a sensible choice. For example, amassing tens of thousands of dollars in private loans may not be the best choice for someone pursuing in a modestly-paid profession.
You probably realize by now that a loan is something you will carry with you for quite a while - typically 10 years or more. That's why, for each and every loan, you should be sure to know the answers to each of the following questions:
If you have sizable loans, even a one-quarter percentage point reduction will save you money over the life of the loan. Also, as you consider cost, remember, when interest is capitalized, you end up paying interest on your interest, as well as on the principal amount of the loan. Frequent capitalizations mean you pay more interest over the life of the loan. So an infrequently capitalized loan with a slightly higher interest rate may be cheaper than a more frequently capitalized loan with a lower interest rate. That's why knowing the "bottom line" price is so important.
When it is time to start repaying your education loan or loans, make sure you keep in touch with your loan servicer. It is your responsibility to pay your loans on time, even if you do not receive a bill.
If you encounter any difficulty making payments, contact your servicer immediately. You may be eligible for a more flexible repayment schedule or even a reduction or temporary break from making payments.
Another possibility for lowering your monthly payments is to consolidate your loans. A consolidation loan can put several loans together to give you one loan with a single rate and a longer repayment schedule. While loan consolidation could make it easier to manage your monthly payments, you may end up paying more over the life of your loan. Consolidating federal loans with a private loan may also result in the loss of valuable borrower benefits, including options such as income-based repayment and loan forgiveness - so review your options carefully.