Offering loans to the students is just one part of the finance market. It makes easy for the students to pay for their college fees. There are different types of student loans offered by private money lenders as well as the government, each having different features, pros and cons which you need to know before you choose on such loan.
According to research by Chronicle of Higher Education:
- There are about 20 million students in US attending different colleges in the country and
- More than 60% of them borrow money to help pay their college fees and other expenses related to their education.
That means more than half of all the students carry a loan when they come out of the college taken from a traditional source such as a bank or from any other alternative offline and online sources such as Libertylending.com and others.
However, this fact does not necessarily imply that most of these students understand the impacts and implications of the wide variety of options available out there to choose from for financing their college education. In fact, most of the students do not know what to expect when it eventually comes around to the repayment of these loans. This means that surprisingly a considerable number of students are confused about the consequences of their loans. This is because they do not know the basic things such as:
- Which is the best option to choose
- What the best procedure is that they should follow and
- How best they can make the best and most use of then money received.
If you too are one among this confused lot of students, this article will help you a lot to know about this specific financial landscape and in the process help you to make the best choice.
Different things to know
In order to know the process and types of student loans to choose from, you will need to proceed step by step. It should include understanding different things such as:
- The key loan terms
- The private loan marketplace
- The difference between each type of loans
- Whether these loans are worth getting
- The coverage of each student loan
- The obligations associated with each
- The other alternative ways to pay for your education and finally and most importantly
- The ways to pay it back.
This will make your knowledge about the student loans more comprehensive and you will be able to move on with your professional career after college not having to worry about the loan or keep you from moving ahead in your life.
The loan terms and types
The types of student loans vary which is why you will need to get familiarized with the language used in this filed in order to comprehend your available options in a better way. The key terms include:
- Private loans that are offered by banks and credit unions
- Federal loans offered by the US Department of Education
- Fixed rate that indicates the amount of interest charged will not change over the entire life of the loan
- Variable interest rate which is just the opposite of fixed rate and is tied to the market and therefore can vary over time
Once you know these terms, you should now focus on choosing between federal and private loans. Ideally, federal loans should be the first choice for students while considering their borrowing options for college education. However, these federal loans may not cover the entire financial need of a student which is why you may have to give private loans a thought.
Students who are ineligible to get federal loans include those who are:
- Not US citizens
- In default on a previous federal student loan
- Convicted of drug abuse and offense and those who
- Do not maintain a satisfactory academic improvement in college.
For these students, private loans can be a very good funding option, though it is required to have a creditworthy co-signer to get a private loan. The rate of interest of private loan may vary according to the school the student attends.
Understanding the Difference
Private Loans come in a variety of interest rates, fees and borrowing terms. They normally have higher borrowing limits as compared to the federal loans. It can come in variable as well as in fixed interest rate and some may need to make payments during enrollment while others may allow you to defer payments. Few may even offer a grace period wherein you do not have to make any payments until after graduation.
Federal loans on the other hand are characteristically fixed and have a low rate of interest. These loans are occasionally subsidized in which the government pays the interest on the loans when the students are enrolled or for many months after their graduation even. To get these loans, the application must complete the FAFSA or Free Application for Federal Student Aid guidelines. The most common federal loans are the Direct Loans which both grads and undergrads can avail, if eligible. Other types of federal loans include the subsidized Perkins Loans, fixed interest Parent PLUS Loans and Grad PLUS Loans.
Other things to know
Apart from the above, there are other things to know as well, starting with the worth of these loans. It will be a helpful investment that will provide high yields in terms of greater annual earnings when you finish education.
These loans will cover the cost of attendance, tuition and college fees, books and supplies, room and board. Private loans may also cover coursework such as computer supplies and also parking fees, internet services, and more.
The loan obligations include entering into a legal contract and adhering to the terms of it or face some severe consequences. Paying a student loan back is essential to build a strong credit history.
Lastly, consider other options if you feel that paying back a student loan is a huge burden for you. To reduce the amount to borrow you may work part-time while you are in school, apply for scholarships, attend more affordable schools, and explore loan forgiveness if you take federal loan.