A college education certainly does not come cheap and the majority of students (or perhaps more often their parents) will need to borrow money in order to pay their tuition fees. The latest statistics indicate that the average student in the United States will graduate with approximately $26,600 of student debts. This means that it is fairly important for students and their parents to choose the best student loan to meet their needs.
Student loans are often viewed as a basic fact of life for anyone who chooses to go to college or university and it seems like every student has one. However, with 41% of student borrowers defaulting on at least one debt the first five years of the loan, banks often view students as a lending risk and will not approve loans and credit cards without a guarantor. There are a number of different opportunities open to students depending on their own individual circumstances.
Federal And State Student Loan Options
The first port of call for most students should be government loans. Federal and state loans tend to have the most favorable terms when it comes to interest rates and repayments. It is also common for these loans to have the most liberal deferment and forbearance options.
Federal student loans have fixed interest rates and they are often subsidized by the government making them one of the most cost effective loan options for most students. State loans often share these features, but are restricted in terms of either the state applicants reside in or where they are studying.
Private Student Loans
Not everybody is able to qualify for a federal or state student loan. If this is the case then a private student loan from a bank or other lender is worth consideration. The majority of traditional banks will need a credit check to be passed if they are to approve a private student loan. As this can often be a problem for students, many will be better off looking to other lenders who deal with bad credit.
Some of the most popular private student loans are guarantor loans where a more creditworthy relative is able to sign the loan as a guarantee to the lender that if the student is to default on the repayments, the guarantor will be held financially responsible.
In the event that a student does not have anyone who can act as a guarantor for them, they can instead apply for a bad credit loan. This may hold a higher interest rate to compensate for the additional risk the lender faces when giving a loan to someone with bad credit.
Credit Card Borrowing
As a last resort many students resort to high interest credit card accounts to help them cover the cost of their college expenses. This is not a particularly good idea as the interest rates are very high in comparison to student loans. Credit cards are not really intended for this sort of long term borrowing and many students find that credit card debts soon spiral out of control.
There are a wide variety of options available to students in need of loans to fund higher education, even those who have no credit history or bad credit. Federal and state student loans are usually the best options, although not everyone is eligible for this type of financial aid. Private loans are also available from banks and other lenders although the interest rates are higher than the subsidized government grants. Guarantor loans can be a great way for students with no credit to obtain a private loan. As a last resort, credit cards can also offer borrowing solutions for students, but it is best to explore all other options first.
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