College and University could be and almost always is expensive. If you are not one of the lucky ones that get a full scholarship to the school you’re going to, a scholarship that covers the majority of your tuition, or a trust fund/what your parents were blessed enough to save up to further your education than you will probably be looking into student loans to continue your education. That’s okay, as a person that received student loans I understand that there might be some struggle in paying for an education, don’t worry here’s everything you should know about student loans when going into the school year.
There are two types of student loans
Subsidized and Unsubsidized. Subsidized are more for those with a financial need and have slightly better terms because of this reason and that is why the Department of Education helps out for a bit. The interest rate on both of these loans for undergraduate students is the same at 2.75%. There is also a loan fee when taking out loans that come of a rate of 1.062% that you will have to pay for the number of loans that you have received.
Subsidized Student Loans
Direct subsidized loans are available for undergraduates with financial need. The school that you are going to determines how much you can borrow so this might not cover your full tuition. The good thing about this loan is that you don’t have to pay interest the Department of Education pays interest for this loan. They also pay interest during the grace period as well. The grace period is six months after you finish school. Since the school determines how much you can borrow with this loan the amount awarded to you cannot and will not exceed your financial need so you don’t have to worry about borrowing more than you can payback. The loan limit for a first-year receiving a subsidized loan is 3,500 for both dependent and independent students.
Unsubsidized Student Loans
Direct unsubsidized student loans are available for undergraduate and graduate students. Unlike the subsidized loans, you don’t have to have a financial need to receive this loan as there are no requirements for this loan besides being a student. Your school also determines how much of the loans you will receive and that is determined by the cost of the school’s attendance and any other financial aid you receive. Unsubsidized student loans come with interest that isn’t covered by the department of education so you would want to start paying off bits of this loan so it doesn’t increase too much as you will be responsible for the interest rates. If you don’t want to pay the interest while you are in school that’s fine however the interest rates will be added up once out of school and added into the principal amount of the loan that you borrowed. The loan limit for an unsubsidized student loan for a dependent is 2,000 while for an independent (Or for those whose parents couldn’t get a parent plus loan) it is 6,000.
Paying Back Student Loans
You will have to pay back student loans once you’re no longer enrolled in as at least a part-time student or have finished your education. There are two plans when paying back student loans that most people chose the 10-year repayment plan or the 25-year repayment plan. However, that being said there other options to choose from if you’re having trouble with even the 25-year repayment plan. You should contact the advisor if you fit into that but usually, you request a deferment after college and when your grace period will be about to end and that means they give you another six months before you have to start paying back your student loan. There is also a payment called income-driven repayment plan where they take account of how much you making yearly and make a monthly payment plan that fits into your salary however that might mean you will be paying it back longer than the 25-year plan.
Private loans originate from a bank rather than the government. Private loans are for those who need to pay off more of their school but the government provided loans isn’t enough, they are usually only gotten to fill the gap once you maxed out on government-provided loans. Private loans usually aren’t as forgiving as government loans and without a great cosigner, you will more than likely have to pay back a higher interest rate. If you are applying for a private loan to cover the rest of the cost that your financial aid didn’t cover then you will need good credit as they tend to do credit checks before approving you for a loan so you will have to work on your credit beforehand. If you don’t have good credit (think in the 700 range) than you need to have a good creditworthy cosigner. A cosigner is someone who makes enough and has good credit to approve the amount that you are trying to get that way if you are failing to make the repayments and can’t afford any of their repayment options the bank knows they will get their money back by going to your cosigner. More than 90% of undergraduate students who get private loans have a cosigner to sign off on the amount that they are requesting. Don’t forget with the more money you make and the higher credit score or credit score of the cosigner the interest rate will decrease than those who have an average credit so if you’re looking into private loans start working on your credit score.
There you have some more insight on government-funded loans unsubsidized as well as subsidized along with the interest and repayment and even some information on private student loans. If you have any questions about these loans or let us know if this helped you in your loan process please let us know in the comments below. Have fun in the game of loans.