The cost of higher education has been on an upward trajectory in recent times. For many students, this cost can be a barrier to accessing the higher education goals they have set for themselves. Scholarships and grants can provide some financial relief, but oftentimes they are unavailable to all students or do not cover the entire cost of attaining a degree. The good news is there are several financial aid options for students who may need additional assistance in order to go to colleges and universities in the form of student loans.
What are the primary types of student loans?
The two main types of student loans are federal loans, which are funded by the federal government, and private loans, which are offered by a lender, such as a bank, credit union, or the school itself.
Federal loans are offered by the government. The loan terms and conditions must adhere to particular laws and are usually (but not always) more favorable to students than private loans. Students do not need a credit check to be considered for federal loans. Many federal loans offer income-driven repayment plans, meaning the loan repayment terms are directly tied to the borrower’s income status after they complete their education.
There are two types of federal student loans – subsidized and unsubsidized. If you are eligible for a subsidized federal loan, the government will pay the interest of the loan while you are in school and during a period of deferment after your studies. If you receive an unsubsidized loan, you will be responsible for the interest payments on the loan the entire time.
Private loans, on the other hand, are offered by non-government, private organizations, such as banks, credit unions, and schools. Frequently, private loans have more strict eligibility requirements than federal loans. In some cases, they may require background checks or credit checks. Private loan terms are set by the institution and can vary; interest rates can be fixed or varied, payment terms can be interest-only or income-driven, and approval may require a co-signer in some cases.
There are many factors to consider when applying for student loans, such as the amount of money needed, the loan repayment terms and interest rate, and the income expectation after graduating. If going to college is a goal for you, student loans can greatly assist you in accessing the higher education you want. Checkout our next article: 5 Quick Tips for Student Loan Borrowing.