Penny Wise: Private vs. federal loans

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By R.T. Gonzalez

Students who apply for loans can get money to help pay for college and living expenses.

A private loan is provided by private banks or credit unions, which may offer more money than a federal loans processed by the U.S. Department of Education.

When students apply for private loans, banks recommend they have co-signers to ensure someone will be liable if the student does not pay.

Some banks, like Wells Fargo, do not require students to be U.S. citizens to apply if they have a co-signer who is, said Joel Rodriguez, a personal banker at Wells Fargo.

A student without established credit will also need a co-signer.

Banks like to see students who are financially stable and will be able to pay the bank back, Rodriguez said.

Rodriguez said that even if students could afford to pay back the loan in a lump sum, he recommended paying back in increments because it will show borrowers understand the responsibility of making payments.

Some banks, such as Wells Fargo and Discover Bank, offer discounts on loan interest for making payments on time and take off percentages for applying for automatic loan payments.

Though federal loans do not offer discounts, federal lenders take off 0.25 percent of loans when students apply for automatic payments.

An adviser in the financial services office at this college, Belinda Gonzales, recommends students apply for federal loans over private loans because they tend to have lower interest rates.

FAFSA offers students two types of direct loans — subsidized and unsubsidized.

Subsidized loans by the federal government are awarded to students who show financial need, and interest does not accrue until six months after they graduate.

Unsubsidized loans do not require the student to show financial need, but interest does accrue while the student is in school and after they graduate.

Students who apply for federal loans must have applied for financial aid through FAFSA and fill out the federal direct loan request on the Alamo Colleges website at http://mywebdev.alamo.edu/fa/internal-test.

Visit the financial aid office in Room 101 of Fletcher Administration Center or call 210-486-9282.

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