As the cost of funding college education rises, increasingly more students are applying for loans to pay for school. Dealing with significant debt as you go into the real world will pose a big threat financially, especially if you cannot find a good job after college. Although it is not easy to find a suitable loan, the following tips will help:

Understand the Loan Application Process

You need to complete a FAFSA (free application for federal student aid) form, which you can find online. Once you fill it out, the government will send a copy of it to all the schools that you are applying to and the school aid office will choose the right aid package for you. If you get an offer for more than one federal loan, you do not have to take them all.

If you want to be a responsible borrower, you should look at the low-cost options first. If available, you should consider accepting federal tuition payment plans or work-study plans. You can then consider taking out a credit-based loan if these funds cannot cover your costs.

Types of Federal LoansChoose Right Student Loan

Federal loans usually have lower rates of interest than private loans. All federal loans, excluding PLUS loans, have a limit on how much you can borrow annually:

Direct subsidized loans – if you have demonstrated financial need, this loan is for you. You will not be charged interest during periods of deferment or while in school. Moreover, you will only have to pay after graduation.

Direct PLUS loans – these are unsubsidized, credit-based loans offered to professional students or graduates. You can take out this loan if you need more money than you can receive from federal loans. These loans have no borrowing limits but their interest rates are higher.

Federal Perkins loans – these are subsidized loans with low rates of interest but you can only qualify if you have significant financial need. The loan will accrue interest while you are in school, but there is a grace period of 9 months after college before repayment begins.

Direct unsubsidized loans – these loans are not based on financial needs and the school chooses the amount you can borrow by factoring in attendance costs and other financial aid. Interest will be charged while you are in school and during deferment. However, you can have the option to defer your interest payments until you graduate.

Selecting Private Loans

If your family contributions and federal loans cannot cover everything, you should pay for the remainder of your costs with private loans. You should consider using a loan calculator to see what your repayment plan will be like and determine how much you will require. Although you can choose a lender of your choice, your school might have a list of preferred lenders.

Because most students do not have credit, they need to have a cosigner. Your cosigner will help you to get a lower rate and increase your chances of approval. You should consider factors like terms and interest rates when comparing private loans.

Some lenders add origination fees to the total loan cost. Moreover, the interest rate might not be fixed, which means that you need to be careful. Ask your potential lender whether you are allowed to pay back your loan when still in school; repaying your loan early can reduce the total cost.

Student loans can be complicated but knowing the details of the process and the loan that is ideal for you will come in handy. Make sure that you conduct thorough research before signing any papers; if you make a mistake, you will pay the price.