Fahmi Rizwansyah says:
Beyond free money, student loans are the best choice to secure additional financing for school.
Here are the basics you need to make informed decisions when selecting student loans:
Determine How Much to Borrow
The following steps will help you determine exactly how much money you will need to borrow for school so you don’t come up short and find yourself charging items at higher interest rates.
Step 1: Identify Your Educational Expenses
Work with your school’s financial aid office to identify all expected costs. Expenses to consider include:
* Tuition
* Fees (i.e., late registration, parking permits, etc.)
* Room and Board
* Text Books and Supplies
* Special Equipment (i.e., computer, etc.)
Step 2: Evaluate Your Existing Financial Resources
Because the total cost of borrowing can increase significantly with time, a good strategy is to borrow only what is absolutely necessary. Evaluate non-loan sources first to pay for many of your educational expenses. These sources of funding include your savings and current income in addition to the awards listed in your financial aid package.
Step 3: Calculate Funding Needed
The additional money you need to pay for the full price of your education is calculated as follows:
Total Educational Expenses – Total Funding Available = Amount to Borrow
Example
Total Educational Expenses $21,580
– Financial Aid $14,590
– Savings $ 2,000
– Gifts from Family $ 1,000
Additional Amount Needed $ 3,990
Use this estimate to evaluate your loan options. Remember, borrow only what you need by maximizing financial aid.
Understanding Student Loan Interest Rates
This section provides you the basics you need to calculate and understand student loan interest rates since they play an important role in determining how much you will pay over the life of the loan.
How Interest Rates are Calculated
The interest charged on student loans is calculated as simple daily interest. Simply put, the outstanding principal balance is multiplied by the interest rate and divided by 365 days to calculate one day’s interest amount. So, if you have a $10,000 loan, with a 7.00% interest rate, the formula would be $10,000 x 0.07/365 and the interest amount for one day would be $1.92.
Shop for Competitive Rates
Since the federal government sets the interest rates for federal loans, you can be assured that all lenders offer the same interest rate. To get the most competitive offer, focus on borrower benefits.
The range of interest rates vary on private student loans, which are typically credit based. You may apply for a private loan on your own. However, if you don’t have an established credit history, you can apply with a creditworthy co-signer to potentially receive a lower interest rate. While it's tempting to choose the private loan with the lowest advertised interest rate, it's best to compare student loans using APR examples.
APR is the Best Comparison Tool
Unlike basic interest rates, which don't represent the true cost of the loan, the APR takes into account all of the associated loan costs such as finance charges and loan fees. Each of these factors can have a significant effect on the cost of a loan. The APR adjusts for each of these items illustrating the true cost of borrowing for your education. Since all lenders provide APR examples, using them to compare two competing loans will give you a true apples-to-apples comparison of your options.
Borrower Benefits Reduce Interest Rates
Many lenders offer money-saving benefits for services such as auto-debit payments. When shopping around, ask lenders how much you can expect to save over the life of the loan with their borrower benefits.
When you look at borrower benefits, consider selecting a lender that will provide service for the life of the loan. Some lenders offer great borrower benefits but will sell your loan to another party or servicer upon repayment. Another servicer may not provide you with the servicing levels you expect.
Graduated Repayment Plan
With a graduated repayment plan, you make interest-only payments for the first two or four years, or $50.00 a month, whichever is greater. After the initial period of lower payments, your payments will increase to include principal and interest for the rest of the term.
When you reduce your monthly payments, you pay more interest over the life of the loan because you repay the principal at a slower rate.
Extended Repayment Plan for Federal Loans
An extended repayment plan reduces your monthly federal loan payments by spreading them over a period of up to 25 years.
Since payments are stretched over a longer term, total interest costs are higher when compared to a standard repayment plan or graduated repayment plan.
by Citi.
Cheers, frizzy2008.