Student loans are a common way to pay for college, but they’re not as simple as they seem. This article explains how student loans work, their available types, and their terms. And also, share some tips on choosing the right one for you.
What is a student loan?
A student loan is a type of loan that students can take out to pay for their Education. It is usually called a Stafford Loan, but there are other types of loans, such as private and PLUS loans.
The government offers these low-interest rate federal student loans to students who have demonstrated financial need and will be attending school full-time at an eligible school in the United States.
Types of loans
There are two kinds of loans: federal and private. Federal loans, which include the Stafford and Perkins loan programs, are low-interest (or no-interest) loans that the U.S. Department of Education makes. You can apply for these loans from your high school counselor or your college or university financial aid office.
Private student loans come from banks, credit unions, or other lenders—not from the government—and have variable interest rates that may depend on how long you take to pay back your debt and whether you make any late payments along the way. Private student loans often require a co-signer (usually a parent) because they don’t qualify as part of most financial aid packages since the government doesn’t subsidize them like federal student loans are.
Interest rates, terms and conditions
Knowing your loan’s interest rate, term, and payment schedule is essential. Loans are not like credit cards; you can’t just pay off the debt when you have the money. You’ll have to make monthly payments for years or even decades.
“Among all borrowers, 5.8% is the average student loan interest rate, according to recent data from Educationdata.org,” says Lantern by SoFi experts.
In addition to knowing how much you owe and when it will come out of your paycheck, be aware of what happens if you miss a payment: defaults, collection agencies, lawsuits and wage garnishments may await those who don’t pay their student loans on time (or at all). Your credit score gets affected due to unpaid debts.
Student loan forgiveness programs are also worth considering before taking out any loans. For example, some Federal Direct Loans qualify for Public Service Loan Forgiveness after 120 monthly payments are made under a qualifying repayment plan. At the same time, others require enrollment in an income-driven repayment plan that caps monthly payments based on family size and income level.
Things to consider before taking a loan
When you take out a student loan, it’s essential to know the terms and conditions of that loan. You should also find out your interest rate and how much the monthly payment will be for each month.
Also, ensure you know how long it will take you to repay your student loans. Some people have shorter repayment periods than others, but it’s best not to borrow more than what you need for school if possible.
Hopefully, you’ve found this article helpful. Everyone knows that student loans can be a stressful topic, but if you take the time to do your research and plan for your future it is worth it.