Student loans are a great way to seek financial aid when looking to study further. These loans do not take into consideration your academic performance, and that is why they are easily available to almost anyone. Of course the loan has to be paid back, but the interest rate is low, and in most cases the repayment does not start till after graduation.
Let’s take a look into the various types of student loans that are available today:
- Student federal loans – These loans are given to students wanting to pursue higher degrees. The money in these cases is given directly to the educational institution as opposed to the student personally. In almost all of these loans there is a grace period of 6 months, which means that the student does not have to begin to make repayments for at least six months. These loans can be subsidized or unsubsidized and are mostly used to supplement the personal resources of the student as opposed to covering the entire expenses of the education program.
- Parent federal loans – These loans are given to the parents as opposed to the student and the repayment is also to be made by the parents. These loans have a much higher limit than the ones handed out to the students themselves. However, in these loans the repayment begins immediately and there is no grace period given as in the case of student federal loans. The interest rate of these loans is also higher and goes up to 8.5% of the loan amount. In case the parent is unable to pay the loan, the student will not be accountable in any way and the credit rating of the parent will be impacted.
- Private loans – These loans are given to students by a bank or a finance company as opposed to the government. These loans mostly offer a higher loan amount and also have a grace period that allows the student to complete the studies, and then begin paying back. However, these loans do come at a higher interest rate, and this is the reason why most prefer the federal loans. These private loans can be given directly to the student or handed out to the school directly, according to the type of loan that the borrower chooses. Private loans also charge an origination fee which is a one time charge on the loan.
While the academic performance of the applicant is not taken into account when giving out a student loan, the credit rating is definitely considered in all types of student loans. There is a discharge clause in the federal student loans where one can file for bankruptcy under the ‘undue hardship’ clause. It is important to understand all the implications of a student loan before you sign on the dotted line. Keep in mind that it is not a scholarship or a grant and you will need to pay it back, so understanding the implications of the interest amount is very important in this case.