About Student Loans

With college tuition at record highs, and fewer families being able to pay for higher education out-of-pocket, student loans are a widely used solution by many students. Student loans are essentially loans that are to be used by borrowers strictly for their college tuition costs, textbooks and living expenses while in school. Since students have varying financial needs and have diverse circumstances to confront, different student loan program options are offered to those who need a financial lift with the cost of attending college.

Types of Student Loans

Depending on a student’s existing needs, they have the option of turning to either federal student loans or private student loans. Each has its own advantages, but one is certainly more sought after than the other.
student loansFederal Student Loans: These classification of loans are funded directly by the United States government. Federal student loans offer a single, low fixed interest rate and is most desired by students due to its flexible repayment options.

Within the realm of federal student loans, borrowers can opt for subsidized or unsubsidized student loans; the subsidized type defers interest until a few months after the student graduates. Only at that point will the principal balance begin to accumulate interest that the borrower is expected to repay (until this point, the federal government pays the interest on the student’s behalf). Unsubsidized student loans, however, accrue interest immediately after the funds have been issued.

Private Student Loans: Financial institutions like commercial banks and credit unions provide eligible student with additional financial aid. Private student loans are requested by students, if federal student loans and other financial aid like grants and scholarships are not enough to handle the cost of college attendance.

Unlike their federal student loan counterpart, private student loans vary from one lender to the next and interest rates are typically very high. These interest rates may also be variable — meaning that they can go up or down (but likely up) — at the lender’s discretion.

Since private loans are funded independent of the government, it is in the bank’s best interest to get their money back as soon as possible. This could mean that students may be required to repay the loan while still in school.

Student Loan Repayment

Student loan repayment

Again, depending on the loan type received students may have to begin repaying the loan as soon as they receive the funds.

Federal student loans have a few student loan repayment plans to help students maintain payments after college. A couple of the most popular student loan repayment plans include:

Standard Repayment Plan: A standard repayment plan is available to students, which involves a 10-year term to repay the balance back to the lender — this includes any earned interest.

Graduated Repayment Plan: In a graduated repayment plan, students are required to more higher and higher monthly payments. They start off low when careers are at their lowest incomes and are gradually increased in expectation that students will be paid more salary as the years progress. This option is usually offered at a 10-year repayment term as well.

 

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Learn More About Student Loans

A student loan is a way for a person matriculating in higher education to borrow money from either the government or a private banking institution to pay for their education. Typically, as long as a student is enrolled in an accredited university and is meeting the minimum credit requirements, the repayment of the student loan is deferred until after graduation.

Those looking for a student loan with low interest rates are advised to first complete a Free Application for Federal Student Aid and see if they can get any loan money from the government. However, the amount of money the Feds loan is capped by congress, so additional loans through a private bank will probably be necessary.

By taking the time to compare the student loan interest rates offered by a variety of banking institutions, a student or their benefactor can help locate the best rate available to them.

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