For many, student loans are a realm of confusing numbers, terms, and processes that puzzle most when talking about them. For those students that just filled out their FAFSA and need a quick refresher, or those who are totally lost when it comes to the topic of financial aid, here are some facts to help you be more educated.
There are various types of loans that are disbursed for college, though the three most common are federal.
Direct Subsidized Federal Loans
This type is only awarded if a student is struggling financially and can prove a certain amount of need. Subsidized federal loans are unique in that the U.S Department of Education pays for the interest that you accumulate while you’re still in school. The amount awarded is based on what your school determines you need based on several factors, such as your household income and living situation.
Direct Unsubsidized Federal Loans
Unlike subsidized loans, anyone is eligible to receive unsubsidized loans. The amount received is still determined by the school, but it’s only based on cost of attendance rather than financial need. The main difference is that the student borrowing is responsible for paying the interest that accumulates during their time at school.
Direct PLUS Loans
This loan focuses primarily on graduate students and is based on credit checks. They have unsubsidized fixed interest rates that only build up while students are enrolled in school.
But the confusion doesn’t stop at graduation, since many graduates are left scratching their heads on how they would be able to pay off their newly acquired bills. If you have subsidized or unsubsidized loans, there is a six-month grace period, right after you graduate, where you don’t have to make a payment. Direct PLUS loans, on the other hand, must be repaid as soon as they are fully disbursed.
Things to Avoid
When it comes to loans, there are some aspects that students should avoid outright so the bills don’t rack up in the future.
Failing to use up all your free money first.
This seems like a no brainer, but it’s best to use up all your free money from grants and scholarships to pay for school first. Only take out loans if you need that extra bit of cash to pay for school.
Taking on too much debt.
Never borrow more than what you need or can afford to repay. It may be tempting to take offers of thousands of dollars to buy a shiny new laptop or new clothes, but resist the temptation: your credit score will thank you later.
Private student loans over federal.
Always borrow federal loans first because they have lower interests rates, are more available, and have better repayment conditions than private loans. Federal loans give many more options for payment, and don’t stand to make a profit off of you like private institutions will. If you feel the need to borrow from a private institution, seriously analyze how you’re using your financial aid and if your education budget needs re-adjusting.
If you find yourself having a hard time keeping up with payments, you may qualify for Student Loan Forgiveness. This program forgives loan balances tax-free after 120 payments, but in order to qualify, you must meet certain criteria.
Taking on debt is a huge financial decision, so students should be more informed about what they are getting into. Do your research, get informed so you can easily live a post-college life without the stress that financial uncertainty brings to the table.
by Jean Santiago