Student Loans
Student loans are an investment in your future. They are designed for and intended to be used by students to cover the cost associated with education. Expenses like tuition, books, fees, living expenses, and other supplies are often paid for by students who are utilizing loans. When you apply for financial aid and are awarded an aid package by your school, generally student loans will be included in that award.
If you are going to use student loans to fund your education, then the best thing for you to do is to be an informed borrower. To do this, you should regularly visit your lenders' website so that you can be sure you are keeping track of the loans you are borrowing. A vast majority of the student loans that students use are issued by the federal government. If you are using federal student loans, you should regularly check your loans on the Federal Student Aid Links to an external site.website. You can also use the Federal Loan SimulatorLinks to an external site. to see what your different loan repayment options may look like.
The Federal Student Loan system is funded by the federal government and made available to borrowers who have filled out the Free Application for Federal Student Aid (FAFSA). Even though you are awarded these loans, you do not have to accept them or use them in their entirety. It is best to search for scholarships or grant money in addition to loans. This will help to reduce the overall level of debt you end up with.
Federal student loans can be either subsidized or unsubsidized.
Subsidized Loan -the federal government will pay the interest on your loan while you are enrolled in college. *At graduation, you will owe only what was borrowed. Interest will begin to accrue after graduation.
Unsubsidized loan- the interest accrues on your loan during your college enrollment and begins as soon as the loan is disbursed.
In addition to the Federal Loans, a student may also borrow a private student loan. There are some significant distinctions between federal loans and the loan that private lenders may offer to students. Generally speaking, the federal loan system is more favorable to borrowers.
Some of the key differences between federal and private loans are:
- The financial institution sets private student loan terms
- Federal student loans do not require a credit check; private loans do
- Private loans may not offer repayment options that fit your financial situation
- A private loan may not have any options for forbearance or deferment
- You may not be able to prepay interest or principal on a private loan without penalty
Being a Responsible Borrower:
Student loans are not different from other forms of loans or credit that you may be using. You must be sure to be a responsible borrower. Every dollar you borrow in excess of what you need to cover educational costs will have an impact on you financially. You should be sure to borrow only what you need to cover your costs. A rule of thumb is that you should try to borrow only about one year of your anticipated annual salary post-graduation.
Repaying your Student Loans:
After graduation, you will begin paying back your loans. If you borrowed federal loans, you are afforded a 6-month grace period, but you should be budgeting for this payment right away so that you are not caught off guard once repayment begins.
You will be automatically enrolled in the standard repayment plan, which breaks your loan into 120 equal payments over 10 years. If this payment structure is not feasible, you do have other repayment options. In this case, you should be sure to contact your loan servicer as soon as possible to discuss the other repayment options available to you.
If you borrowed private student loans, your repayment options might be limited.
Remember that the longer the payment terms on either federal or private loans, the more you will pay in interest expense.
*If you attend graduate school at least half-time, your federal student loans may be automatically deferred, meaning you don't have to make payments while you're in school. However, interest may still accrue on your loans, depending on the type of loan you have.
Learning Checkpoint:
Optional Activity: Now that you have an understanding of student loans and know the importance of being a responsible borrower, go to the Federal Student Aid website at https://studentaid.gov/Links to an external site. and begin to educate yourself on the topic. Be sure to check your loan balances each semester. Checking the balance on your student loans regularly allows you to create a plan to manage your debt.