A student loan is a type of loan designed for college or postgraduate students. It helps students pursue their education with financial flexibility. This specific loan is used to pay for post-secondary education and the associated fees, which include tuition, living expenses, books and other supplies. This is a popular alternative payment solution for students and their families to help them manage finances better while studying.
Like any other kind of loan, the borrower’s obligation is huge, and he or she has to bear it until the loan is fully paid. Therefore, it is best to take note of the following considerations and tips before applying for a student loan.
Understanding the different types of Student Loans
There are two types of student loans which offer resources to help students with their financial situation in different ways and processes. A federal student loan is granted by the federal government. It features a much lower interest rate compared to a private student loan. For this type of loan, the Congress has the power to decide on the yearly interest rate.
In a Federal Student Loan, payment is flexible and loan forgiveness can be given under certain circumstances. However, Federal student loans have origination fees and PLUS loans carry a fee. For undergraduates, they also set borrowing limits.
Experts advise undergraduate students to maximize federal student loans first before they avail themselves of a private student loan, only if needed.Meanwhile, private Student Loans are offered by banks and other financial institutions. This type of student loan is harder to get due to a lot of stringent requirements such as proof of ability to pay. It has also a higher interest rate and is not included in most forgiveness programs.
The best type of student loan is the one that will perfectly serve you, so you better study the pros and cons of each type of student loan.
Know your repayment options
How much money you might make after college depends on the career path you have chosen because your repayment options will be affected by your future salary. However, there are several options borrowers can choose to repay their loans.
An income-driven repayment plan is based on your loan and your current financial situation. Designed to make loan payments more manageable based on your income, it allows borrowers to pay somewhere between 10% and 20% of their discretionary income toward their student loans each month.
On the other hand, loan forgiveness programs which are offered by the state may forgive a portion of loans if graduates enter certain jobs for qualified individuals.
The Public Service Loan Forgiveness program is another option offered by the federal government to students working in public service jobs.
Make good research before diving into this major life’s decision. A student loan is undeniably a great help for someone who has big dreams and aspirations, but he or she must be ready with all the obligations that go into taking out this loan. The borrower of the student loan cannot file failure to pay due to bankruptcy. The granted loan will remain unless he or she is able to pay in full.
