Student Loans – A Thorough Guide
Student loans are mostly a good type of debt. It is an investment made on education that otherwise if not paid would be unachievable. However, before you borrow, it is really important to clearly understand how a student loan works and how you can use it.
Tips to Borrow Wisely
No matter what type of loans you choose one basic thing that you need to understand here is that – more the amount you borrow, harder it is to repay. Student loans are something that you cannot avoid, very well knowing how difficult it can be to repay them, but you also know that without these loans, studying and achieving your dream job can be next to impossible.
However, student loan debt can also become a serious burden for the students. Thus, to reduce this burden:
• Try your luck and apply for scholarships and grants to reduce the student loan amount. Even the smallest scholarship or grant can be really helpful.
• To support your education and save some money, work part-time to pay your rents. This might help you gain some valuable experience in the work field, something that your peers may not receive until they graduate. Working can help you learn to make some of the most important decisions of your life.
• Check and evaluate the less-expensive schools and also the state education expenses. Check the reputation of the university you go and also analyse how much your degree will really matter when you go to get a job.
• Cut costs where you can by opting for used books, inexpensive entertainment and making your own homemade food. These will help you make significant savings.
When you borrow money in the form of a student loan, always remember that you will one day have to repay all the money back with the added interest in the future.
How do Student Loans Work?
Student loans are designed specifically to help students fund their educational courses. But how do they differ from the credit card or home loans? Here are some of the main points that make student loans different from the other loan types.
Comparatively Lower Costs
Student loans are designed exclusively for the students and are less expensive than the other types of loans. Here are the different factors that help in keeping the student loan costs low.
• Students are offered with options such as Federal student loans that are governed by the government with very burrow-friendly features. The loans have very low interest rates and are mostly fixed for the new student borrowers. Thus, you need not worry about any dramatic interest rate change or other payment shocks.
• In certain cases, the interest rates are subsidized or paid by the government for a few students.
• Student loans are considered low risk loans for most lenders. Some lenders also consider checking the degree or the field of work of the student as an indicator to understand how the student will repay the loan before passing the loans.
Easier Loan Approval
In the most common conditions, students don’t get high-paying jobs straight out of college, nor do they have high credit scores. Thus, getting approval for other loans seems almost next to impossible. The Federal student loans that is offered by the government does not require the students to have even a minimum credit score. However, there may be some details in the credit history that may actually disqualify you.
Note: You do not need a good credit score to get a student loan, but by paying your student loan you can definitely establish your credit score. Thus, it is very crucial that you pay your student loan on time, especially if you do not wish to get disqualified for other future loans.
Benefits You Receive During Payback?
Student loans are mostly borrow-friendly loans with special features that help in making loan repayment really manageable. However, loans offered by the government programs are deemed to be the best for the students, but are not as flexible as the student loans offered by the private lenders.
• In-School Deferment: In some student loans, the borrower does not have to start making payments for repaying the loans until he/she is out of school. This is actually one of the best benefits of a student loan. During this time, the interest rates on the subsidized loans can be paid to help your loan amount from not growing big.
• Unemployment: The federal student loans mostly offer unemployment deferment where in, you can legally stop making loan payments until you have a good job in your kitty.
• Limited Income: The federal student loans allow the borrower to adjust the monthly payments, especially during months when finances are tight. So, if you choose the income-driven repayment plans, you can wisely reduce some of your loan burden.
• Tax benefits: The interest rate that you pay on your student loans can help reduce your overall taxes. However these benefits are usually little, especially looking at your income and the other return factors.
• Loan Forgiveness: Under certain public service jobs, if you have repaid the loan for 10 years, there is a possibility that your loan qualifies for loan forgiveness. On the contrary, other borrowers under the income-driven repayment loans may qualify for loan forgiveness after 25 years. However, forgiven loans in this case may be taxable.
Difference Between Federal and Private Student Loans
When it comes to student loans, you can borrow money from any lender who offers you the best loan offers. However, what you really need to understand is that the loans offered under the government programs are designed specifically for the students, keeping them affordable, easy to qualify and absolutely borrow-friendly. Thus, it is but wise to use these student loans.
Once you have taken all the offers provided to you by the government loans, you can then choose to take help of the private lenders, but only if you need them. The private lenders are mainly banks, online lenders and credit unions who offer both, student loans and standard loans.
In order to get the loans from a private lender, you will typically need to qualify for them. Hence, you need a good credit score and a decent income that will help you to repay your loan. However, there are many students who have neither of the above and hence, a guardian or a parent with a good income and a credit score is allowed to apply for the loan, or simply co-sign the loan. This makes them both 100% responsible for paying back the loan.
According to the recently updated federal loans, student loans have a fixed interest rate, while a private loan has a variable rate of interest which makes them more risky. Thus, if the interest rates increase then simultaneously your payment amount also increases.
How to Get Student Loans?
Ok so, now that you have chosen which type of student loan you want, the next question that arises hereby is – how to get a student loan?
It’s simple! You can start right from your school’s or college’s financial aid office and question them about the different types of help that are made available for the students. Make it a point to discuss about scholarships and grants in addition to the loans.
Once that is cleared, the next step is to fill the Free Application for Federal Student Aid form (FAFSA form) that gathers all the needed information about your finances. This information is used not only by your university but also the U.S government, for determining the importance and your need of a financial aid. Hence, it is important that you complete filling up your FAFSA form every year without fail. And also make sure that you fill the form correctly, updating the estimates whenever you want throughout the year.
Take the chance and also apply for your school’s financial aid office and any other financial source that can lend you money at a decent rate. If your loan is approves, you can then decide which student loan to choose, or whether you will need all the offered aid. Also, in order to understand how a student loan works, you will need to complete the introductory counselling session held at the start.
Although, for a private loan, you should find lenders who will meet with your needs and only them complete the loan application to find a good lender.
Note: Make sure you understand clearly about when you need to start repaying your student loan. Although you may not have to start repaying immediately, but it is still important to understand, learn and plan your repayment with the help of the due date of your payments.
What Are the Types Of Student Loans?
So, while you go through the loan application process, it is best suggested that you get familiar with the common types of student loans that are provided by the U.S government.
• Perkins Loans: Ideally, your first choice, the perkins loan features a subtle, low fixed rate. It is made available to all borrowers irrespective of their previous credit score and history. But, these loans are exclusively need-based student loans which mean that they are not offered to all the students and are very few.
• Stafford Loans: The Stafford loans are also very easy to qualify. They offer comparatively more money than the Perkins loan and have subsidized interest rates. The Stafford loans are mostly available for both undergrads and the graduate students.
• PLUS Loans: These are mostly, Parent Loans for Undergraduate Students! These loans are a type of federal private loans that request for your credit review and allow you to start repayment as soon as the payment is made. The PLUS loans that are taken for the undergrads are directed towards their parents, thus allowing the parents to cover a good percentage of the loan amount for their kids.
• Consolidation Loans: These loans combine several student loans together, making them one single loan, thus making the repayment much simpler. The added benefits of a loan consolidation are also an attraction.
However, what you need to understand that loan consolidation works differently for different loan types. So, it is best that you learn about the differences clearly and only then decide whether you want to mix all the federal loans or consolidate them with your other private loans. In any case, if you combine all these loan types, then you will need to lose the various benefits that are otherwise offered by the federal student loans.
