3 Hallmarks of a Great Student Loan

Male student leans on stack of textbooks on deskTaking out a student loan could be one of the most significant financial decisions you ever make.  Your ability to pay the loan back at all is entirely dependent on how you fare post-graduation.  Competition for top-tier jobs is fierce at the best of times, and the type of economy you will inherit upon graduation is unknowable.  In other words, consider your major carefully before applying for loans…and remember that the repayment period on most loans will be ten years or more.

In short, you’re making a major financial commitment.  So naturally it’s in your best interest to know exactly what you should look for in a great student loan.  Here are three signals you’ve found a winner.

Look for a fixed rate on your loan.

Generally speaking (more on that in a minute) you should look for a fixed rate on your loan.  Interest rates are historically the lowest they’ve ever been.  And due to various macroeconomic factors, it will be hard for the Fed to nudge rates upward significantly without seeing large consequences in the wider economy.  All this points in the same direction: take advantage of this moment in time to lock in a low rate.

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As alluded to earlier, though, it’s not always that simple.  Let’s say you’ve just finished paying off your initial student loan ten years in the future.  You’ve decided that in order to advance your career, returning to school for your Ph.D. would be a wise investment.  Depending on interest rates at the time (and the state of the wider economy) a variable rate could be the right choice this time around.  If rates are higher but you expect them to fall in the near future or while you’re paying off your loan, then a variable rate would be wise.

Navigating loan structuring issues like this ultimately boils down to your risk tolerance, and the direction you believe rates will go in the future.  Being a sharp observer of the economy can benefit you here.

Look for a Federal Loan, Rather Than a Private One.

What justification is there for such a broad statement?  (Especially in an age where efficacy in the federal government seems to be dwindling?)  Simply put, federal loans offer an entire suite of protections that private loans may or may not offer, or offer in a diminished form.

Deferment and forbearance options, and the stalling of payments 6 to 9 months after graduation are just a few of the guaranteed benefits of federal loans as opposed to private ones.

This can provide much-needed time to get on your feet during the often difficult transition period which follows graduation.  It also provides a bit more leeway should you fall on hard times and have some short-term difficulty with payments.

Seek Out Education-Specific Lenders Only.

A lot of individuals make the naïve mistake of applying for a student loan through a general lending institution.  While it’s true that most general lenders will work with you to help finance your education, you’ll want to make sure you don’t bother with anyone who isn’t specific to the student loan space.

Why?  For the simple reason that lenders specifically oriented toward students will have a much better understanding of your exact needs, and will offer you competitive benefits that generalized lenders likely never would.  For instance, most student-oriented lenders don’t require repayment until you graduate, or only require it in minimal forms.

Conclusion

A central rule of thumb is simply this: always make sure your loan is structured to provide the maximum number of benefits to you, the student borrower.  Student debt doesn’t have to be painful if you know how to manage payments responsibly, and how to structure a loan along lines that maximize benefits to you.

With total student debt in this country sitting at over a trillion dollars, this will be the core distinction between those who repay their debts and those who do not.

Posted on July 12, 2017 by in Personal Loans, Student Loans

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