Different people will have different needs, which may necessitate applying for various types of loans.
Many people use student loans to help pay for their undergraduate and graduate schooling. The student loan system can be difficult to understand at first. Here are five things you should know about student loans.
1. Different Types of Loans
There are two main types of student loans available: private loans and federal loans. You can get a private loan from a bank or other private organization, but in general, these are only available after you’ve received the maximum amount of federal financial aid allowed to you. When you receive a private loan, you may have higher, variable interest rates, fewer choices in terms of repayment plans and the inclusion of lender fees. They also tend to be unsubsidized with annual caps and can be affected by your credit history. Federal loans, by contrast, tend to have low fixed interest rates, the ability to apply for loan forgiveness programs and highly flexible repayment plans.
However, your access to federal loans will be more restricted, based on whether you’re listed as a dependent on a parent or guardian’s taxes, your level of education and you or your parent or guardian’s tax bracket. There are four main subtypes of federal student loans: direct consolidation loans, direct PLUS loans, direct subsidized loans and direct unsubsidized loans.
2. Repayment Of Loans
Student loans come with repayment plans that are determined by a variety of factors. You may be restricted to one or two choices or you may have a large number of options. Your options will depend on the total amount of your loan, the loan type and your income. Some of the most common types of loan repayment plans include: standard repayment, graduated repayment, income-based repayment and extended repayment plans. Each plan will include a payment rate and a period of time during which you can expect to pay off the loan, typically ten to thirty years.
Payment rates may be fixed or graduated, high or low and based on a percentage of your income or the total amount of your loan and your interest rate. A good rule of thumb is to set up automatic payments so you don’t forget to submit your monthly payment. It is also possible to default on your loans, but this can negatively impact your overall credit score and increase your risk of not qualifying for future loans, especially student loans.
3. Uses For Loan Money
Student loans are meant to be used for educational purposes only and are restricted accordingly. There will likely be specifics spelled out in your loan agreement, but in general, you can use your loan money for tuition, room and board, off-campus housing, transportation, school supplies, textbooks, fees for various programs and groceries. You won’t be permitted to use your loan money for takeout, movies or travel for the purpose of vacation. For example, you could use student loan funds for fees, transportation, housing and supplies related to studying abroad, but you couldn’t use those funds for traveling or sightseeing while studying abroad.
4. Loan Servicers
When you take out a student loan, you’ll also be able to access a loan servicer. Loan servicers are the people who keep track of your loan payments and your repayment schedule, provide advice and information on various programs and actions and assist you in switching repayment plans or applying to payment postponements and forgiveness programs. If you have a private loan, the lending organization will likely provide you with a loan servicer. If you have a federal loan, your loan servicer will be a contractor who works with the federal government.
You should find out who your loan servicer is before you need to start repaying your loans so you can ask any questions you need to and prepare to start repaying your loans.
Different people will have different needs, which may necessitate applying for various types of loans. It’s important for you and your family to figure out what you need and how much you need, and then to look for the best option to fit your needs.