Having issues to pay for your education? Student Loans have been the solution for millions of Americans that needed financing for college. It can be yours too!
How student loans work
It is not new that college is expensive. Currently, more than 44.7 millions of americans have a student loan that helps them afford school and finish their higher education. It can also be a great option for you.
A student loan is a type of loan designed to assist students on paying school - tuition and fees - and other related expenses such as dorms, textbooks, school supplies, and more. The main characteristic of these loans is that they tend to have lower rates than any other type of loans because they are oriented to support educational growth of society. Another reason why they are cheaper than other ones is because they represent a lower-risk loan for lenders and take the future degree as a factor of future income and repayment ability.
Student loans can be either federal or private, which means that the first ones are provided and/or subsidized by the state. The following ones are offered by online lenders, banks and other financial institutions. Even though both of these loans are not hard to get, federal ones have less requirements and usually better conditions.
These loans not only represent a way to finance education but also the beginning of your financial life because they not only help you with college related funds but also establish credit. Plus, interests in your loan can also be a good help to reduce your taxes if it meets the requirements.
Finally, these loans have a flexible and manageable dynamic of repayment. Terms are usually not as strict as other loans, especially from the ones that are offered by the government. For example, some loans - or most of them - give you a grace period where you do not have to make payments - or pay interests only - and just focus on your studies, or provide unemployment deferment, which allows borrowers to stop paying the debt until they get a job. These benefits are not only offered by federal loans but also by some private ones.
Federal Student Loans vs Private Student Loans
The main difference between these types of loans is that federal loans are provided by the federal government and private ones are offered by private lenders. As they have different issuers, each of them offer different interest rates, loan terms, repayment options and extra benefits.
Let’s take a look into the main features of each of them:
Federal Student Loans
Private Student Loans
Regarding the FAFSA application (Free Application for Federal Student Aid), it is recommended that all students fill out this form. Getting a federal student loan should always be first taken into consideration. Private loans are very good and the current market offers great rates and conditions for them but federal loans represent a better financial option overall.
However, Private Student Loans have helped millions of students that really need educational financing so it should always be considered as a positive option for a loan as well.
It is important to mention that both of these student loans are directly sent to the school’s financial aid office, even private ones. If the borrowers are interested to have full control of the funds to organize them how they want, they may consider applying for a personal loan instead.
Paying back student loans
These loans provide a lot of flexibility of repayment and the possibility of getting it forgiven if the borrower gets a qualifying public job.
The repayment plans usually start with a low monthly payment that starts increasing gradually, allowing the borrower to take their time in obtaining and organizing their funds. They also can be eligible for a temporary suspending payments for a period of time if the borrower is going through a tough financial situation.
Private loan’s repayment plans can be different depending on the lender. Some of them offer similar conditions to federal ones. Generally, these loans have less repayment options and they have to pick the one they are going to follow when applying for it.
With these loans, you are likely to pay back your loan while you are still in college, but lenders can give you the option to have lower payments during that period. You can also get a lender that offers a grace period, but they are not very common.
Some of these student loans can also offer borrowers to pay less interest if they set up auto-pay, that way they not only pay less monthly but also avoid late fees.
Pros and cons of student loans
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