In 2010 when President Obama signed into law the Health Care and Reconciliation Act of 2010, he opened the door for allowing people to apply for federal student education loans without going through a third party. This meant that loans for education could now be directly borrowed from the government. Although we do not know all the details of this law, we do know that getting a Federal Student Loan just became a whole lot easier. The Federal Student Loans that are available are based on need not on income or credit, thus allowing many people who could not afford education to go to school. These types of loans do not require a cosigner.
The Difference between A Cosigned Loan and A Non-Cosigned Loan
Most private banks that will lend on a student loan require credit and assets to back up the loan. When a student does not have the means or credit to support a student loan most banks will require a cosigner. The cosigner will provide financial information that will support the repayment of the loan. In these cases, the cosigner will also be responsible for the loan if it is not repaid by the primary borrower or the student. Non-cosigned loans are when the student is solely responsible for the loan whether it be a private student loan or a Federal Government Student Loan. The Borrower will be required to repay the loan according to the terms that they have agreed upon.
Available Student Loans without A Cosigner
- Stafford Loans – Both subsidized and unsubsidized Stafford loans are based on financial need and do not require a credit background.
- Perkins Loans- Perkins loans are campus based loans that are funded by the Federal Department of Education, but are limited to only participating Universities or Colleges.
- Plus Loans- Plus loans are based partly on your parent’s credit if you are an undergraduate. A parent must also complete a secondary application and provide financial information.
- Consolidation Loans- These loans are used to consolidate several student loans into one education loan.
The Deciding Factor
Depending on your circumstances and your ability to pay you will want to choose a loan that will best fit your financial long term goals. Private student loans require payments almost immediately while Federal Student Loans allow you to finish school before requiring any payment, they are also more flexible in repayment terms.
Deciding to go to college is an important step that requires a lot of consideration. Not only do you need to look at the time that it will take to accomplish your goals, and the sacrifices to your current lifestyle, you will also need to determine what the best way to finance your education is. Most student loans today are either federally based or bank based. Depending on your situation and the ability to pay back the student loan you will want to choose what best suits your needs. Student loans are designed to pay your education tuition and minor costs, but private student loans will cover all attendance costs.
What are Private Student Loans?
The private student loans are primarily through independent financial institutions. This is the most expensive type of loan for education. The private student loan is based on your credit and ability to repay a loan and normally requires a credit check along with an application listing all of your assets and liabilities. The loans are more difficult to get than other loans that available, but will allow you to borrow a higher amount then the limiting Federal Loan. You would be able to declare bankruptcy with this type of loan if you were not able to repay the loan. Some disadvantages is that the loans usually carry a higher interest rate and repayment of the loan is set with payments starting soon after the money is borrowed.
Conditions of a Private Student Loan
- The loan is based on your credit and determined by the lending institution.
- It has competitive adjustable interest rates that change according to lender.
- Repayment period is per-determined with very little flexibility in consolidation.
- Payment on the loan begins relatively close to the beginning of the loan.
- They can provide the full amount needed to attend college.
Banks May Require a Cosigner
It is possible that the lending institution may require a cosigner if you are not in a financial position to repay the loan according to their terms. Since repayment of the loan is required while attending school the banks will want to know how you will be able to pay the monthly payments. If they do not feel that you can they will require someone to assure that payments will be made. A cosigner is financially responsible for the loan if it is not paid.
In today’s economy and job market, people are finding it necessary to return to school. The government has made this exceedingly easy to do since the Department of Education now administers the loans directly. There are many advantages to a federal student loan and it should be considered at any time there is a change that requires you to get an education in a different field than what you were trained in. The first thing that should be started is to see what loans you may qualify for, by submitting the Free Application For Federal Student Aid (FAFSA) found at www.fafsa.gov. This will give you an idea what type of loans you would be eligible for.
Why Choose A Federal Student Loan?
There are many good reasons for applying for federally funded loans but the main reason would be that the loans are based on your needing an education rather than if you have enough credit to obtain the loan. This is especially important when you are not employed or trying to work yourself into a better position. In fact, when you make less, your need is higher so your chances of getting a student loan is higher. Another factor to consider is that federal student loans do not require you to repay the loan until you have finished your education. Also some loans are subsidized meaning that the government will pay the interest rate while you are attending college.
Benefits of Federal Student Loans
- The federal student loan is based on your financial need.
- The Federal Department of Education qualifies and lends directly to the borrower
- The interest rates are fixed and at a lower rate than most banks
- The Repayment terms begin after education is finished and can be renegotiated depending on your situation.
- Repayment amounts cannot exceed fifteen percent of your total income.
How the New Laws Effect Federal Student Loans
With the new federal student loan laws that are in effect it will become easier for students to apply and receive student loans from the Department of Education. In 2014 graduates will be able to renegotiate their student loans allowing for a maximum of 10% repayment amount of their total income. Also Parent Plus loans have dropped in their interest rate to 7.9% from the eight and half percent in 2011. Pell grants will raise their awards allowing for lower balances.
If you have decided that you are going to apply for a student loan without a cosigner there are some things to consider. Find out what you can qualify on your own and what is available to you based on your personal situation. Once you have done this you will be able to make a sound decision as to how you want to finance your education. Talk to your friends and family to find out what they have done in the past and advice you what to look for. Once you have some ideas than you will be able to move forward. One of the first things to do is to check into grants and scholarships before attempting to look for a loan.
Filing a FAFSA Application
Before looking into any sort of student loan or private loan file the (FAFSA) Free Application for Federal Student Aid form with the federal government. This is the government’s application for federally funded student loans and covers all of the loans available. It may take a couple of months to receive the information back so it is important to file this at the beginning of your search. These applications are designed to help those that cannot afford the education need to get a good position in the work force so it will not matter if you do not have good credit or even a job at the time that you file.
Sequence of Checking Out Student Loans
- Start with looking for scholarships and grants that might be available.
- File your FAFSA as soon as you have determined what school you would like to attend to find out what you can qualify for.
- Look into Plus Loans that take into consideration your parents credit. These are still considered federal loans but a higher rate of interest.
- Check out Private Student Loans and what their requirements are without a cosigner.
- Find out if there are other loans available that can supplement your federal or private loan.
Take Advantage of the New Federal Guidelines
The federal student loan provides more opportunity and flexibility for the new student. This allows for you to concentrate on education rather than how you are going to pay this month’s student loan payment. The government has made it easier for the unemployed and low credit student to get an education and better themselves in the workforce.