Okay, I have a son who is going to private university soon. In order to pay for tuition, I need loans.
What are the major difference between federal and private loan besides interest rates?
How do I apply for federal loan (i know private loan can go thru bank)?
When I get the loan, do they give me lump sum or just money directly to school ? How does it work on student loans? (mayhave more question later)
Update:And no advertisement please, I am not interested in which loan firm I am going to. (unless you said private loan firm does federal loan.. I doubt that.. that is why I asked that question)
Update 3:Actually, I am concerned about loan in parents part or parents contribution. Because after all, it is more than student himself and it needs to be paid every month (right?)
Answers & Comments
Verified answer
Just a few things to add to Mr. Busch's comments:
He's correct about federal unsubsidized loans starting to accrue interest from the day they are disbursed, but you don't necessarily have to begin paying them while in school. They are eligible for an in-school deferment, just as subsidized loans are, and most students take advantage of this.
Another option for you, if your credit is approved, is the federal parent PLUS loan, which allows you to borrow up to your son's cost of attendance. Repayment begins when the funds are disbursed to the school, but you can request that the payments be deferred until after graduation. The credit standards for PLUS loans tend to be easier than they are for many private loans, so many parents with iffy credit are pleasantly surprised to find that they are accepted for PLUS when they've been turned down in other places.
Federal loans have some advantages:
Students can borrow without a credit check (but the amounts are limited)
The interest rates are reasonable and they are fixed.(although higher this year than recently)
There are flexible payment plans, some of which are income contingent
The loans can be consolidated after graduation to make them more manageable
There are options for forbearance and deferment that allow borrowers to postpone payments
for a period of time if they hit a rough patch.
There are options for forgiveness in case of death or disability, as well as for public service.
Payments can be deferred while the student is in school.
The big disadvantage to federal student loans is that they generally cannot be discharged in bankruptcy, and that if a student defaults, wages and tax refunds can be garnished.
You apply for federal loans by completing the FAFSA--the Free Application for Federal Student Aid at www.fafsa.gov Once you've submitted the application, it is sent to the schools whose codes you included. They will then put together a financial aid package for you that includes any federal grants and loans that your son is eligible for, plus any state or institutional aid they have to offer. For more information on federal student aid, check out the website at www.federalstudentaid.ed.gov
Private student loans vary a great deal in their interest rates and the options they offer as far as deferment, payment plans, etc. They are credit based, so in most cases students are not able to get one without a co-signer. Many do have the option to remove the co-signer after a certain number of on-time payments. Private student loans can also usually be discharged in bankruptcy.
Private loans that a parent takes out will vary a great deal. You might be able to get a very good rate on an equity loan, but, of course, it does tie up your equity.
A good book for parents to read on college financing is "Pay for College Without Sacrificing Your Retirement" by Tim Higgins. Also "How to Go to College Almost for Free" by Ben Kaplan and "Debt-Free U" by Zac Bissonnette
Hope that helps!