A student loan is a type of financial aid that a student in college or university can use to manage the cost of going to college. It is different from grants and scholarships. Scholarships and grants do not require applicants to pay back the funds. On the other hand, student loans are borrowed, and you will need to pay them back after some time.
So, if you want to go to college but are not financially stable, taking out a student loan may be the best option. Besides, since it is a type of installment loan, you can pay it back flexibly.
Additionally, there are two types of student loans that you will be learning about as you venture deeper into this content. Regardless, you can be able to cover various educational expenses and pay back your student debts after graduating.
How Does It Work?
When you apply for a student loan, you are borrowing from a private lender or the government to pay your college tuition as well as other education costs. But over time, you need to pay back the loan with the interest that increases with time. Nevertheless, your interest rate and repayment options depend on the type of student loan you have.
Types of Student Loans
There are two types of student loans: Private student loans and federal student loans. Private student loans can be accessed through different bodies like online lenders, banks, and credit unions, while federal student loans are provided by the government
• Federal Student Loans
Federal student loans are available and accessible through the U.S. Department of Education. Following this, when you want to apply, you will have to submit a free application for Federal Student Aid. This is also known as the FAFSA. Except for PLUS loans, most federal student loans do not require you to carry out a credit check.
What’s more, the interest rates are credit-based but set by federal law and are lower than private loan rates. Here are the different federal loan types that you can access depending on your financial needs:
- Direct subsidized loans – Available for undergraduate students.
- Direct unsubsidized loans – Available to undergraduate, graduate, and professional students.
- Direct PLUS loans – Accessible to graduate and professional students as well as parents of dependent undergraduate students.
- Direct Consolidation loans – You can combine different federal student loans into one.
• Private Student Loans
As mentioned earlier, private student loans are available through credit unions, banks, and online lenders. Although these types of loans come with fixed interest rates, most of them have maximum loan amounts. This means that lenders have specific standards for borrowers to meet.
For instance, if you have a credit score of 670 or above, you have access to competitive terms and rates. However, this makes it hard for undergraduates to qualify and borrow this type of loan independently.
Pros and Cons
There are advantages and disadvantages to applying for a student loan, and I will be showing you some convincing and discouraging reasons.
Pros
- No credit history is required.
- Flexible repayment plans.
- It offers financial support.
- Lower interest rates.
- It can help build credit after paying it off.
Cons
- A cosigner may be required for private student loans.
- It can be expensive.
- You may not qualify for some loans.
- Interest rates can fluctuate.
- Amount limit.
- If you leave the academic program, you must repay the loan immediately.
What You Can Do with a Student Loan
When you want to use and apply for a loan, it is important that you find the use of the loan. In other words, figuring out what you can do with the loan is essential. This is why I will be showing you some of the expenses you can use your student loans for:
- Study abroad expenses.
- Transportation expenses.
- Books and supplies
- Institutional expenses
- Technology expenses.
- Groceries
- Room and board.
Sometimes, private student loans are similar to federal student loan allowances. However, you will find out that some lenders place limitations on what you can use the loan for.
How to Get a Student Loan
The application procedure for a student loan differs depending on how much financial support you need and the type of loan you are applying for. Here is the typical procedure for getting financial aid through student loans:.
- Complete the FAFSA. This is to determine your eligibility.
- Next, provide your personal information and financial information for yourself, your guardian, or your parent.
- Some required information includes;
- Bank statements and investment records.
- Social security number.
- Federal income tax returns.
- W-2 forms as well as other records of money you earned.
Once you provide all of the required information, your eligibility will be determined by the government, which will inform you of how much you are qualified to borrow.
FAQs
What happens if I miss a payment?
If you miss a payment for your loan, your loan will go into default. Some private loans allow borrowers to miss one payment. On the other hand, federal loans allow you to have nine months of missed payments before your loan will be considered a default.
However, defaulting on a loan, no matter what type of loan it is, can hurt your credit score, and the government will offset your debt using tax refunds. This is why it is important that you select a repayment plan that will help you meet your monthly payments. Nevertheless, you can apply for loan rehabilitation or loan consolidation to avoid defaulting.
Who can get a student loan?
Typically, students who are enrolled in accredited educational institutions, such as colleges or universities, can apply for student loans. Requirements may vary depending on the type of loan and the lender.
How do federal student loans differ from private student loans?
Federal student loans usually offer more borrower protections and flexible repayment options compared to private student loans. They also have fixed interest rates, whereas private loans may have fixed or variable rates.
What is the process for applying for a student loan?
To apply for federal student loans, students must complete the Free Application for Federal Student Aid (FAFSA). Private student loans may have their own application processes, which often involve a credit check and may require a cosigner for students with limited credit history.
How much can I borrow with a student loan?
The amount you can borrow depends on several factors, including the type of loan, your financial need, the cost of attendance at your chosen school, and other financial aid you may receive.
When do I have to start repaying my student loans?
Repayment typically begins after you graduate, leave school, or drop below half-time enrollment. However, repayment terms may vary depending on the type of loan and the lender.
What options do I have if I can’t afford to repay my student loans?
If you’re having trouble making payments, you may be eligible for options such as income-driven repayment plans, deferment, forbearance, or loan forgiveness programs. It’s important to contact your loan servicer to explore your options.
Are there any consequences for not repaying my student loans?
Failing to repay your student loans can have serious consequences, including damage to your credit score, wage garnishment, and even legal action. It’s essential to communicate with your loan servicer if you’re experiencing financial difficulties.
