What are Student Loans?
Student loans are the means many students use to afford a higher education. Loans are available to undergraduates after the completion of high school and graduate students after they have received an undergraduate degree. There are many types of student loans, though most are provided by the federal government, there are both public and private options. Student loans are not just available to students, but also to parents wishing to borrow money to pay for their children’s education. These loans are called PLUS (Parent Loan for Undergraduate Students) loans.
Student loans are used to provide the student with tuition, books, room and board. Student loans need to be applied for annually and are not automatically renewed, even if staying at the same learning institute. Student loans are loans and will be required to be paid back to the lender. However, unlike other loans, student loans typically offer borrowers much longer repayment periods. For some, student loans are the only way higher learning becomes a possibility, but there are many more benefits.
Student Loan Perks:
- They are offered by both federal and private lenders. Thus, the financial needs of most are satisfactorily met.
- Federal student loans offer both student and parents the lowest interest rates. While variable, these loans are not to exceed 8.25%.
- Private lender rates typically average between 9%-10%.
- PLUS loan rates also vary, but are not to exceed 9%.
- While in school, depending on loan, students may not be required to repay loans. Students can simply focus on their studies due to their loan packages.
- Many student loans do not have to be repaid immediately following graduation. There is normally a grace period of six to nine months, allowing the student time to secure employment, and establish a monthly budget.
- For PLUS loans, parents have the option of beginning loan repayment within sixty days of loan origination, or deferring the loan while their child is attending school. If opting for deferment, parents must realize the principal loan balance will be deferred, but the interest rate will continue to accrue.
- Student loans can be deferred if the student decides to return to school for at least half-time status.
- If finances are tight, students or parents can ask lenders to put loans in forbearance for set periods of time. The borrower will typically have to provide documented proof of financial constraint, but lenders are normally accommodating.
- Depending on the type of the loan, student loans can be repaid over periods ranging from 10 to 25 years, excluding any deferment or forbearance periods.
Understanding how student loans work is important if it is necessary to finance one’s higher education pursuits. While loans can be easy to obtain, they are a binding financial obligation that lasts many years.