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Student loans: federal vs. private

Valbona Bushi

Issue date: 10/17/08 Section: News
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Most of us have probably signed for a student loan while at Case, whether through Sallie Mae for a Stafford or Perkins loan, or even one of the Signature Custom loans that the university offers. Others are personal student loans taken out with a parent, most likely at your local bank, to cover those extra educational expenses. If you are one of the few students whose tuition is covered by others, make sure to still pay attention, because a lot can happen in the four years while you're at Case. You should be prepared, even if the only thing you do is take this advice and give it to a friend.
Student loans don't go away, and some planning will be required to start paying them back in a timely fashion and in a way that ensures that you won't miss a payment. As we have discussed before, this can have an impact on your credit score and impact the rest of your finances.
Let's look at some of the basics:

Federal Loans

The typical federal loans are called the Perkins and Stafford loans. These have certain limits on the amount of money that you can take out. There is a limit for each year, a limit for the total sum over four years, and there is also a limit on the total amount of loans you can take out during your whole time in school, including graduate school. Given these limits and other reasons, make sure you only take out what you need.

Subsidized - These are the best student loans, as the government will pay all of your interest payments while you are in school. There are certain terms for this, so make sure that if you are accepting any spring or fall internships, you still maintain your full student status.

Unsubsidized - While you do not have to start making payments on these loans until after you graduate, interest will start accumulating. When you are ready to pay, the total will be a lot more than what you first signed up for.

There is a nice grace period on these loans, usually anywhere from six to nine months before you need to begin repaying your loans. This time can allow you to get a little bit financially settled and examine your repayment options before the real world begins.

Private Loans

These types of loans usually come with higher interest rates and there typically is no grace period. Paying it back can begin immediately, so you should be ready. Make sure to read all the fine print with these types of loans so you completely understand all the implications and don't fall behind.

Before you know it, it will be time to repay these loans back, so make sure you have planned for this. After you graduate, you'll probably have a lot to think about: choosing where to live, finding a job, and renting an apartment. All in all, make sure to only take out as much money as you will need. That spring break trip to Brazil or Amsterdam might not be worth it if you continue paying it off for the next 10 years or more. Next week we will look at repayment options.
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