Student loans come out as a great help to students who are struggling to pay their college fees. A student loan is specifically designed for students to help them pay their post-secondary education-related fees such as books, tuition, living expenses, and more. Therefore, this type of loan is very popular among students if they need money for their college. However, if you are also interested to apply for a student loan, then there are a few things that you must consider before applying. It is very important for every interested candidate to understand how Student loans work. Therefore, we are here to help you out regarding Student Loans in this article. You will get to know different types of student loans and how it works, so read the following information carefully till the end.
What is a Student Loan?
A Student Loan is a type of loan that is lent to such students who are struggling to pay their college fees. With the help of this loan, students can borrow money and pay it back to the lender later on at a specific date along with some added interest.
This is a type of loan that differs from other loans available in the market as it has a substantially low-interest rate. Also, the repayment schedule of Student Loans may be deferred while the students are still studying in school.
One should not get confuse student loans with grants and scholarships. In studentships, students are not borrowing any money, instead, they have been given that money as a gift that is not entitled to be repaid. However, when a student borrows their college loan, they have to pay it back after some time with added interest, which is considerably less than any other loan.
What are the Types of Student Loans?
Generally, there are two major types or sources of student loans those are Federal and Private loans. The federal loan is most commonly and highly applied as compared to the private ones.
The best thing about a federal student loan is that it is offered by the U.S. government. On the other hand, Banks, credit unions, state loan agencies as well as other financial institutions are the ones that offer private student loans. One must take note that some lenders that provide private student loans that service federal student loans on behalf of the government of the United States.
Types of Federal Loans
In general, Federal loans include five different types of loans for college. Out of these five types of federal student loans, Direct Consolidation loans are mostly recommended to students for easy payments after they graduate. These five categories of Federal Loans are as follows:
- Direct Subsidized Loans: Subsidized Stafford loans are made accessible to students with demonstrated financial needs pursuing undergraduate courses. It is a huge cost saving for the students as they don’t have to pay any amount until after they are graduated. Under standard circumstances, the federal government pays the interest on subsidized loans based on the rates that are set by federal law.
- Direct Unsubsidized Loans: Unsubsidized Stafford loans are made accessible to students who are pursuing undergraduate and graduate programs regardless of their financial needs. Unlike subsidized loans, Unsubsidized Stafford loans are quite the opposite. Here, you need to pay the interest that has accumulated on your loan while you are studying in the college, otherwise, the interest is going to be capitalized i.e., it will add up to the loan balance.
- Parent and Graduate PLUS Loans: The Federal Direct PLUS loan is available to graduate students as well as to the parents of dependent undergraduate students. The PLUS loans are not subsidized, which means that the interest will begin accumulating as soon as the loan is fully paid out. Repayment can be delayed during the period when students are enrolled in the college and also for six months after they are graduated.
- Direct Consolidation Loans: Consolidation loans let you combine a number of federal student loans into one loan. It can be done deprived of losing any kind of benefits of the federal loans. In addition to that, Consolidation can be used to streamline the settlement or to switch the servicers of their loan.
Types of Private Student Loans
In addition to Federal Loans, Private loans also have two categories. If you are not able to access federal loans, then private ones are the other best options for you. Here are the two private student loans:
- Private Student loans
- Private Parent loans
On the basis of circumstances and lenders, the private loans differ and their rates can be fixed or flexible. Some of the private loans require you to make repayments while you are still studying in college.
How To Apply For Student Loans?
The process to apply for Federal and Private student loans is very different which is explained below:
Federal Student Loan Process: If you want to apply for a Federal loan, then you must file a Free Application for Federal Student Aid (FAFSA). Based on your provided information, FAFSA will determine the amount that you can borrow. After this, your college is going to send you a financial aid offer, which will consist of information on how you can accept your loan. At last, you will be asked to sign a Master Promissory Note (MPN).
Private Student Loan Process: If you want to go for Private loans, then filing FAFSA is not important. For this process, you will have to apply for a loan with an individual lender. In order to lend you a student loan, the lender is going to first check your credit score along with asking for a creditworthy cosigner.
This was all about Student Loans and how it works. The number of student loans differs based on their type and other circumstances. So, make sure to check the borrowing limit before applying for the loan. If you need more help or have any other questions on the same topic, then you can feel free to ask us in our comment section. We will try to resolve your queries as soon as possible. Thank you for reading!