For everyone who’s going off to college – you’ll need the help of student loans. Here is everything you need – what are student loans and how do they work?
You’ve quite recently discovered that you got admitted to the college of your dreams, you’re happy to the point of bursting, however hold up … you overlooked something. Who will pay for it? This is the place you’ll require the help of student loans.
Education is a central need of life. But, unfortunately, a costly one. However, we’ve got you covered. Here’s everything you need to know – what is a student loan and how does it work.
A student loan is described as the money that is borrowed by students to pay for their college or university expenses. However, unlike other type of loans, they are designed in such a way that the rate of interest is substantially lower on them.
How Student Loans Work?
As described earlier, student loans are different as compared to other type of loans, but, what makes them unique?
1. Lower Rates/Interest
As a student loan is borrowed by students to pay for their higher education, they are considered as the low-risk type of loans. This is because the policies of the government are designed in such a way that the cost as well as the interest on them remains low. Additionally, the rate of interest remains constant throughout the years. Furthermore, the rate of interest can also be subsidized or cancelled by the government.
One of the major reasons a student loan is important is that it helps you establish credit. Secondly, it sets you on the right path. Now, what matters the most is that 90% of student loans can be borrowed without any credit, however, others require a decent credit score.
Student loans are known as borrower-friendly loans as the lenders – either government or private institutions – are willing to help as much as they can. Mostly, the interest is subsidized by the government while a student is still enrolled in the college or university. So, once a student is employed, he/she has to pay only the actual borrowed amount. However, in case, a student starts facing unemployment, he/she can apply for unemployment deferment to stop making payments for the time being. Eventually, the loan may be forgiven or cancelled after some time depending upon employment condition of the student.
Before you apply for a student loan, you might want to get a little familiar with the types of loans available. Therefore, we’ve boiled them down for you.
Type 1: Federal Loans
Federal loans are the loans that are offered by the Government of United States. They are further divided into the following sub-categories:
- Perkins Loan: When applying for a student loan, Perkins loan must be your first priority as it is a fixed-rate loan. But, they are not available to everybody. They are given strictly on the basis of need.
- Stafford Loan: Unlike Perkins loan, Stafford loan provides more money and isn’t limited to need-based students.
- PLUS Loan: A PLUS loan goes straight to parents, instead of student, so that they can pay a variety of college/university expenses of child. However, they may take a lifetime to be repaid.
Type 2: Direct Loans
- Direct Subsidized Loans: A Direct Subsidized Loan is a need-based loan. Your educational institution determines the need for this type of loan and decides the amount of money you require to cover your expenses. The rate of interest is subsidized by the U.S. Department of Education.
- Direct Unsubsidized Loans: Direct Unsubsidized Loans are the type of loans that do not depend upon need, but, the amount of money borrowed is determined by your educational institution. In any case, you’re required to pay the interest on it.
- Direct PLUS Loans: The U.S. Department of Education offer these type of loans on the condition that the borrower does not have any history of adverse credits.
Type 3: Private Loans
Private loans are the type of loans that can be borrowed from private lenders or institutions. However, the amount of money borrowed as well as the rate of interest on it depends upon the lender. You can apply for this type of loan online or via your educational institution.
An Overview of Best Student Loan Lenders
Now, you might want to know what options you have if you want to borrow a student loan. Here are your best bids.
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