About Student Loans
A student loan is a loan taken out with the explicit purpose of paying for college tuition and books. They can also provide enough money to pay for all or a portion of living expenses while you attend college or university.
These loans are different from other loans because the interest rate is substantially lower, the payment schedule can be deferred while you are in school, and the time to pay the loan back is extended longer than a personal loan would be allowed. The interest does accrue while you are in school, you just don’t have to pay for the loan yet.
Historically interest rates on student loans are at least two percentage points below the going market rate for conventional loans. This is just a general guideline and will vary based on several guidelines. Student loans are unsecured credit loans.
Federal Student Loans
In the United States there is a federally guaranteed student loan program available. The loan is often offered as part of a complete financial aid package that could include scholarships, grants, or work study options. Most US students qualify for some type of student loan. The amount and terms will vary based on circumstances and your situation will be examined with attention on several factors including your current income level as well as your parents. There are guidelines that allow you to exclude your parents’ income from your approval.
If you are approved for a federal student loan the money can come from different places. The money can be provided by the government, or a financial partner of the government. If the money comes from a partner, the government monitors the loan to ensure interest rates are kept low, they provide incentives to lenders to make student loans, and they assist in maintaining the flexible repayment terms.
A subsidized student loan means the government pays the interest charges on the loan while you are in school. This way you aren’t responsible for the interest on the balance until you’ve finished with school. Without a subsidized loan, the interest charges are added into the balance that you have to pay once school is finished.
Private Student Loans
Once you’ve applied for a government student loan and received the information explaining how much federal student aid and loans you’ve been approved for, you can look at private student loans. These loans are provided by different lenders, have different rates, terms and application procedures than student loans offered by- and partnered with- the government. Do your research and carefully compare your options. Many private student loan lenders offer online submission of forms. These rates are generally higher than loans offered by the federal government.
PLUS Loans
A PLUS loan is a loan that can be taken out by your parents for your education. This is a federal program, offered by the government to parents who need money for their children’s education. Technically this isn’t a school loan, but this federal program and several partner programs offer special interest rates if the money is going to be used for education. This program has online forms.
First Steps
First you need a pin number. This federal student aid pin is used to sign the Free Application for Federal Student Aid or FAFSA if you apply online. Even if you don’t apply online, the pin can be used to access and correct a processed FAFSA at a later time. Go to www.pin.ed.gov and set your pin number. If your parents’ information is going to be included on the FAFSA, you will need one of them to sign the application as well. Your parents should get their own pin number.
Then go to the FAFSA site at www.fafsa.ed.gov and follow the process. You should never pay someone to fill out the FAFSA. It is a free government form. Once you’ve submitted the application, it will take a bit to evaluate the form and eventually you will receive what is called a Student Aid Report. This report will list your availability and approval for all student aid; including approval for government funded and partnered loans.
Student Loan Payments
We’ve already talked about the fact that you can usually defer payments on a student loan until you are out of school. Normally you have to start paying the loan six months to a year after you’ve graduated or left school. It doesn’t matter if you’ve completed your degree program or are just taking some time off school, if you are out, the payment plan starts. Some loans require you to start making payments if you attend classes on a part-time basis that is half-time or less. Some school loan programs will give you a month or two to defer payments if you move, change jobs, or have another life altering event. The interest still accrues, but you might be allowed to skip a few payments.
As with any loan, check the terms and conditions carefully before signing for the loan.
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