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The Keys to Obtaining and Refinancing Your College Loan
How many of you are biting your nails trying to figure out what
you should do to get your college paid for? You know you need a
loan... but what kind? What are the differences? Would it be a
good idea to refinance or consolidate any loans you already
have? Is this the right time? How much do you really need? What
do college loans cover? If you're wondering about these things,
please read on.
Before you run out and get a college loan, you first need to
know how much of a loan you are going to need. Of course, the
obvious part of the loan is your tuition and the cost of your
courses. But there are many other things that you may need to
have covered through your college loan. This can be your room
and board, school supplies, lab supplies, books, etc. But this
just pertains to your actual schooling. There are other things
you need to take into consideration. This can be car insurance,
gas, transportation, health insurance, food, etc. You need to
add all of these factors up for each year. Then, multiply it by
how many years you are to be in college. This will give you a
rough estimate of how much money you will need.
Some college loans can be used for anything. The lender couldn't
care less as long as you pay it back. If you plan on getting a
part time job, you can count on part of your paycheck being used
towards things that your college loan does not cover. However
remember you'll need to keep part of your paycheck to pay your
monthly college loan payment!
Now we shall go over the several types of college loans out
there. A little later, I will explain about refinancing a
college loan.
First, we will go over federal student loans. These college
loans can either be subsidized or unsubsidized.
Subsidized loans are when the government pays the interest of
the loan for the students. You must show that you are in great
financial need in order to get this type of loan.
Unsubsidized loans are when the student must pay the interest,
but the interest is not deferred until after graduation. Anyone
can get an unsubsidized loan. Both of these types of federal
student loans are the most commonly used.
The next are private student loans. Private student loans are
given to someone with a good credit score. They can be used for
anything, not just the cost of tuition. They are also unsecured.
This means they require no collateral, but they have extremely
high interest rates.
Now, we go to for parent loans. As you guessed, this is a loan
that parents can take for the full amount of the college
tuition. You just have to hope mommy and daddy are willing to do
this for you! The payoff rate and interest rate is much lower
with this type of loan, often because parents have good credit
and the funds to pay the loan off.
Now we come to consolidation loans. This type of loan is used to
consolidate all of a student's loans together so they can be
paid off in one
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easy payment plan to one lender, rather than
having several payments to several lenders. Many students end up
getting this type of college loan after they made the mistake of
getting too many college loans at once.
Those of you, who do already have a loan, may be interested in
refinancing. Refinancing college loans often seems like a good
idea, and it is...if you use it to your advantage. I'll explain
that in a minute. First, you need to understand a few things.
Most college loans are of a variable percentage rate until the
rate is locked. You lock a rate by means of a loan consolidation
or by refinancing. When rates are very low, it generally is a
good idea to attempt to get your loans or loan consolidated or
refinanced.
Before you can even think of refinancing, you must know that is
only offered to you good people that have always made their
monthly loan payment on time. If this does not sound like you,
then I wish you good luck trying to refinance!
Refinancing rates are usually one or two percent lower than your
original college loan rate. Refinancing rates can save you up to
60 percent. But this is where the possible drawback is - and
most people simply don't realize.
The "drawback" is a hidden one - that most people never see. In
order to get your college loan payment lower through
refinancing, you are given a much longer time period to pay the
loan off. Instead of 5 years to pay it off, it can turn into 20
years to pay it off! This may sound good to you in the
beginning. At the time, it will leave you with extra money that
you may be in need of for other bills. But in the long run, it
just costs you more money because you will be paying interest
much longer to the lender. In fact, it can cost you thousands
more!
The smart way to do it is after you refinance and obtain the
lower rate; pay more towards the monthly bill. This way you will
pay off your loan much quicker than normal and at a cheaper
rate. But only put more towards paying it off when you can
afford it. Remember you refinanced your college loan because you
couldn't afford the payment to begin with. So now you've
refinanced just pay off your loan as best you can at your own
pace, bearing the above in mind.
I hope I didn't scare you too much. The important thing you have
to remember is that most lenders gain money from you through the
interest you pay them. If you pay your college loan off faster,
you will make the lender less rich! Take a breather and use your
head before you jump into anything. In other words "look before
you leap".
© Luke Sharp 2005
About the author:
Luke Sharpis a valued member of the "Online
Refinance" team. After the "Luke Sharp treatment"
complicated subjects seemclearer. See more
articles,"poemicles", and lots of info on
refinanceat www.onlinerefinance.net
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