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What’s important to understand about student loans?
Student loans are a type of financial aid where money is loaned to students to cover tuition, fees, living expenses and class materials. The money must be paid back with interest, usually after the borrower graduates or decides to leave school.
When picking a student loan, you may want to consider the following factors:
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The interest rate: This determines how much you will pay on top of what you borrow, and even a small difference in rates can end up costing you thousands. The federal government sets the interest rate for federal loans, and interest rates for private loans are determined by your lender, based on your credit history and other financial factors.
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The repayment length and terms: This will affect your monthly payment and overall cost of your loan. A longer repayment term can mean more interest paid overall, while a shorter term can mean higher monthly payments.
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Whether there are borrower protections in place: Borrower protections are like safety nets when life throws you a curveball: They can include income-driven repayment, deferment, forbearance and forgiveness programs. Federal loans typically have more borrower protections, including forgiveness programs, but some private loans can have deferment options.
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The customer service support available to borrowers: A responsive customer service team can help you understand your repayment options and manage your loan much easier. This will likely be the team you work with for the entire repayment term of your loan.
If your program is very expensive, you may not have the luxury of choosing how much to borrow. Even so, consider capping your total borrowing at a level that keeps your payments below 10% of your projected monthly salary after graduation.
Federal vs. private loans
Federal loans are generally better choices than most private loans because they offer:
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Fixed interest rates (typically lower than private loans).
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More than one repayment plan (including one that considers your income).
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Loans without a specific credit score requirement.
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Generally more borrower protections than private loans.
There is a maximum amount of federal loans you can borrow over your lifetime. Private loans can help you bridge the potential gap between the cost of your degree and how much federal loans will give you.
The total amount of subsidized and unsubsidized loans a dependent student (one whose family’s income is considered) can receive as an undergraduate is $31,000. For an independent student (a student who only reports their or their spouse’s income on the FAFSA) the number is $57,500. For both dependent and independent students, subsidized loans are capped at $23,000. We’ll explain the differences between subsidized and unsubsidized loans more below. In short, subsidized loans don’t accrue interest while you’re enrolled in school at least half-time or during the six months after you leave school, while unsubsidized loans do.
Whether or not you are approved for a private loan, and what interest rate you can get, will depend on your creditworthiness, income and debt levels. A private loan application will typically involve a credit check.
Types of student loans side-by-side
Compare the types of student loans below.
The types of student loans can be compared side-by-side in a table. Direct Subsidized Loans, Direct Unsubsidized Loans, Parent PLUS Loans, and Private student loans are listed with their respective details. Subsidized vs. unsubsidized loans are explained, emphasizing the differences between Direct Subsidized Loans and Direct Unsubsidized Loans. Parent PLUS loans are discussed as an option for parents of undergraduate students. Information on borrowing federal student loans for graduate degree programs is also provided. The process of applying for federal student loans, including completing the FAFSA, is outlined. When you receive your financial aid package, it will be detailed in a letter that outlines all the aid you qualify for, including federal loans, grants, and scholarships. This letter will specify the amount of aid you will receive from each source.
It is important to complete the FAFSA annually to continue receiving federal and state grants, scholarships, and loans. Remember, you should never have to pay to complete the FAFSA.
When deciding which parts of your financial aid package to accept, prioritize grants and scholarships as they do not require repayment. If you choose to accept federal loans, you will need to sign a master promissory note outlining the terms of the loan and your commitment to repay it. Additionally, completing an online loan counseling session may be required.
For nontraditional students or those in specialized programs, there are specific loan options available. Accredited programs may qualify for federal student loans, while private loans can be an option for those enrolled less than part-time or international students. It’s essential to reach out to your program’s financial aid office for guidance on eligible loans.
No matter your circumstances, completing the FAFSA is necessary to access federal financial aid. Remember to only accept the amount of loans you truly need to cover your educational expenses. following sentence in a different way:
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