By Clara Gilleland
When it comes to paying for college, one of the most popular options students use is a student loan. However, many students don’t know exactly how student loans work. This is your guide to the ins and outs of student loans.
There are two types of student loans: federal and private. The federal government funds federal student loans. They typically have a fixed interest rate that can be tax deductible, and students don’t have to start paying back their loans until after they graduate or leave school. Private loans are nonfederal loans that are funded by lenders like banks, credit unions, or schools. Private loans can sometimes require students to start making payments while they are still in school, the interest rates can vary on these loans, and they can sometimes require the student to have a cosigner for the loan. This basically means that your cosigner would be equally responsible for paying your loans. If for some reason you were unable to pay your loans, the cosigner would be responsible for the payments.
There are many pros and cons to both types of loans. With federal loans, the federal government guarantees the funds, so it won’t require a credit check. However, private loans tend to require these credit checks because the loans are not guaranteed from the government. While federal loans have a lower interest rate, they are also limited to lower amounts; private loans can help to fill the gap between the cost of school and the various types of financial aid students acquire.
When it comes to paying back your student loans, there are a couple of different options. With federal loans, you’ll select your payment plan, or be automatically placed on the default plan, which will set you up to pay off your loans in ten years. If your needs change, you can always change your payment plan to adjust to your situation as needed. There are no penalties for paying off federal student loans early, so as soon as students receive a federal loan, they can begin making payments as early as they want if they do not want to wait until after they graduate or leave school.
When paying off private student loans, it is important to check with the loan provider to see if there is a penalty for making early payments; some privately funded loans are structured to only allow for payments after graduation or leaving school. Because private student loans do not all come from the same source the way federal student loans do, they can all vary in their requirements and payment plans. The best option for students who have private student loans is to get in touch with their loan provider and ask them about what types of repayment plans they provide. These types of loans can all be slightly different depending on the provider, so students have to maintain communication with their loan provider in order to keep up with payments and important information regarding their loan.
While there can be pros and cons to student loans of any kind, they are a good source of financial aid for students, along with other sources of financial aid such as scholarships. Students who plan to use student loans should always stay in communication with their loan provider to make sure they always have the right information regarding their loan. Student loans will continue to be used by students for many years to come, so students should always be informed about their financial aid options to figure out if loans are the right option for them.