How to Get or Refinance Alabama Student Loans

How to Get or Refinance Alabama Student Loans

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Just over half (51%) of Alabama college students from the class of 2018 graduated with student loans and they owe an average of $29,469, according to The Institute for College Access and Success. If you’re attending college in this state, you might be exploring your options for Alabama student loans.

By researching your choices, you can find a loan with relatively low costs of borrowing. Here’s what you need to know about how to get and repay Alabama student loans and other ways to fund your education.

How to get Alabama student loans

Although many states have their own student loan programs, Alabama doesn’t offer student loans to residents. But you can find information about paying for college on the Alabama section of the Kentucky Higher Education Assistance Authority (KHEAA).

While KHEAA is an agency of the Kentucky government, it provides college and career planning resources for Alabama students as part of an outreach effort.

But while the state doesn’t have its own loan program, you do have a wide array of choices among the federal and private student loans available nationally. Here’s a look at each…

Federal student loans

If you need to take out Alabama student loans, federal loans are a smart starting point. Federal student loans tend to have comparable (or lower) interest rates and more benefits than private student loans. These perks, such as access to income-driven repayment plans, can make repayment less stressful once you graduate.

The federal government operates the direct loan program. Within that program, there are four types of student loans:

  • Direct subsidized loans: With a direct subsidized loan, the government covers the cost of any interest that accrues while you’re in school, for six months after you leave school and during any deferments. Loans disbursed after July 1, 2020, have an interest rate of 2.75%. These loans are for undergraduate students with a demonstrated financial need.
  • Direct unsubsidized loans: Direct unsubsidized loans have the same interest rate as direct subsidized loans for undergraduate students, but you are responsible for paying all the interest that accrues on your loan. The interest rate for graduate or professional students is 4.3% as of July 1, 2020.
  • Direct PLUS loans: Direct PLUS loans are for graduate students or parents taking out loans to pay for their child’s education. These loans have an interest rate of 5.3%, as of July 1, 2020.
  • Direct consolidation loans: If you graduate with many different federal student loans, direct consolidation loans can help simplify your debt into one loan with one monthly payment.

Private student loans

Although federal loans tend to be the most cost-effective option, many federal loan programs have borrowing maximums. If you need more money to finish your degree, applying for private student loans could help fill the gap.

Unlike federal student loans, which are issued by the government, private student loans are offered by individual banks and financial institutions.

When a private lender reviews your loan application, it bases its decision on your credit history and income. As a student, though, your income might be small, and you probably don’t have an established credit history. To get approved for a loan and qualify for a competitive interest rate, you might need a cosigner to apply for the loan with you.

A cosigner is usually a parent or relative who has better credit and a higher income than you. The cosigner provides a guaranty that you’ll repay the loan.

If you fall behind on your payments, the cosigner has to make them. A cosigner lessens the risk to the lender, so it’s more likely to issue you a loan if you have one.

The interest rate and repayment terms on private student loans can differ from lender to lender, so it’s a good idea to compare offers from private student loan companies to ensure you get your best deal.

How to get Alabama grants and scholarships

Before you take out any loans, however, you should first hunt for scholarships and grants, including Alabama state grants. Unlike student loans, which you have to repay with interest, you generally don’t have to repay grants. They can be a great way to reduce your college expenses and help limit how much you need to borrow in student loans.

Here are a couple of Alabama’s state grants:

Alabama Student Assistance Program

The Alabama Student Assistance Program is a grant worth between $300 and $5,000 per year. The state government awards the grant to undergraduate Alabama residents with financial need attending eligible in-state institutions. You must complete the Free Application for Federal Student Aid to apply.

Alabama Student Grant Program

If you’re an Alabama resident enrolled in an undergraduate program in one of several colleges or universities in the state (consult the Alabama Commission On Higher Education for the eligible schools), you could qualify for up to $1,200 per academic year with the Alabama Student Grant Program. To apply, contact your school’s financial aid office.

How to refinance Alabama student loans

If you’ve already graduated and are looking for ways to take charge of your debt, consider student loan refinancing.

With refinancing, you take out a loan with a private lender for the amount of some or all of your current student loans. The new loan will have different repayment terms than your old ones, including a new interest rate, monthly payment and repayment term.

You can refinance both your private and federal student loans. Note, however, that with federal loans, refinancing has some drawbacks — you could, for example, lose out on perks like access to income-driven repayment plans and forgiveness.

If your goal is to save money or get out of debt faster, though, refinancing may be a tool you can use to achieve your goals.

To apply for student loan refinancing, check out this list of the some of the best student loan refinancing lenders.

Some final tips on Alabama student loans

By researching your education financing options, including Alabama student loans, you can choose the most cost-effective loans for your situation. By applying for grants and taking out federal student loans for college, you can reduce how much you’ll need to take out in higher-interest debt later.

Finally, check out scholarship search engines for opportunities to earn awards for college and further reduce the amount you need to borrow in student loans.

And if you already have loans, look into opportunities for student loan forgiveness, including loan repayment assistance programs special to your location or occupation.

Rebecca Safier contributed to this report.

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