Student Loans

Student Loans

A student loan is set up to help alleviate the difficulties students may encounter when paying their student expenses, which include tuition, textbooks and fees. Unlike regular loans, they often have lower interest rates, and will often be allowed, even if the subject has little or no money.

There are two different types of loans that a student can choose from. Federal loans are provided by the government, and can either be subsidized or non-subsidized. Subsidized loans do not generate interest while a student is enrolled in school, and will often be provided in a package with other financial aid benefits, including grants and scholarships. Private loans, on the other hand, are often less popular than federal loans, but they will shift based on the availability and interest rates of government loans.

Standard Student Loans

Since it is a difficult task for students to handle such large sums of money at such a young age, the federal government has introduced a few options to provide them with financial assurance if money becomes an issue. One of these options is known as co-signing; the federal government will allow a loaner to have someone else guarantee that their debt will be paid, often by verbal and written agreement. This will implicate the cosigner and even potentially affect their credit rating, but at the same time, it will take some pressure off the student to pay it all in full.

Another thing that separates student loans from many other loans is that the former is often considered good debt. Were someone to take out a large sum to buy a boat, then it would be considered bad debt, but when a student enrolls in a post-secondary institution, then it is considered good debt because it is an investment. Lenders may even charge less interest if they see that you are pursuing a higher level of education, or even a degree at a more prestigious school.

Student Loans2Income-Based Student Loans

There are also alternatives to paying back student loans. One of these is known as an income-based repayment, which allows the loaner to pay the amount back in increments based on a percentage of one’s income. While this only applies to federal loans, the borrower will only have to pay, in extreme cases up to ten percent of their income.

Also, after a certain period of years, the debt will be forgiven. If the person works in the public sector, then the maximum amount of years is 10, while if they work in the private sector, it will be 25. The one major criticism with this program however, is that it may motivate some to choose low-wage jobs instead of high-paying positions if the debt is more significant than their salary, at least in the short term. Also, having such a process as optional is problematic, as it will only be beneficial to those who expect to have low wages.

Student Loans2 (2)Repayment

To repay your student loan debts, you must ensure you know what your servicer requires and when to provide it. The debts may need to be paid off in certain increments, so it is essential that you either know these are in communication with the loan provider. Loan repayment will often begin about 6 months after school is finished, or if someone goes from a full-time to a part-time course load. Now, both public and private providers will give you a selection of repayment methods. Here are a few plans that the federal government provides:

  • Standard Repayment Plan: A fixed plan that may cost more in the short term, but will guarantee that you pay less interest in the long run.
  • Graduated Repayment Plan: Payments are lower at first, but as time goes by, you end up paying incrementally higher.
  • Extended Repayment Plan: Payments can either be standard or graduated, but they will be paid over 25 years time.
  • Income-Based Repayment Plan: This requires you to pay back your debt based on a percentage of your income. To qualify for this, you must have some partial income-based hardship, and you will be required to pay over 25 years time.

Key Points

There are two ways that you can acquire student loans. They can either be acquired through public or private means. There are many options available for students to relieve the burden of student loans, including co-signing and long-term plans. Be sure however, to know what your service requires and when to provide it. Student loans will often take effect six months after completing a full course load, so be prepared for potential withdrawals from your bank account.
Finally, the Federal government offers many different plans that accommodate various working or living situations, so be sure to evaluate the different options.