A student loan is a popular alternative payment solution for college or postgraduate students looking for financial flexibility. It helps them and their family manage their finances better while they achieve a less hassle journey in reaching for their dreams and aspirations. Applying for student loans nowadays is a lot more convenient because the borrower can choose to get a student loan online. By doing it online, they can also check a lot of information about the loan they are applying for. However, this kind of loan is not for everyone, and a lot of qualifications must be met, and requirements must be fulfilled.
If you consider pursuing a college degree with the help of a student loan, there are a lot of important things you must know before you dive into this major life decision.
Understanding different types of Student Loans
If you want to apply for a student loan, you have 2 options: federal and private.
A Federal Student Loan is funded and issued by the Federal Government and has a lower interest rate. This loan is also flexible with payment methods linked to income upon employment. Loan forgiveness can also be given under certain circumstances, under a federal student loan.
A federal student loan does not require a lot from the borrower. There is no need for a credit history and co-signer, and that makes borrowing a little less stressful. The terms are also more flexible but be ready for origination fees. Do note too, that federal loans have borrowing limits for undergraduates.
Meanwhile, a Private Student Loan is offered by private lenders like banks and other financial institutions. This type requires proof of ability to pay which is either in the form of a co-maker or co-signer from the borrower and a good credit score. Interest rates are also higher for private student loans, and it is not included in most loan forgiveness programs. If you decide to avail yourself of this type of loan, always be a responsible borrower to avoid financial troubles.
Remember that not all federal student loans can cover most of the student’s financial requirements so make sure to choose the one that will perfectly serve you by consulting someone who is knowledgeable on student loans.
Knowing repayment options
For every college student who avails student loans, their career path may influence how much money they might make after college. Upon getting the loan, they should also realize that their repayment options are based on their future salary. Many college students only realize this when they are about to start paying back the loans.
One more thing about student loan payments, the borrower is given a six-month grace period. This gives the borrowers ample time to look for a stable job. They can also use that period to plan and strategize ahead to make sure their job can pay off the loan.
To help borrowers in loan repayment, they can choose from an income-driven repayment or a loan forgiveness program.
Many borrowers consider an income-driven repayment plan to make loan payments more manageable. This allows the borrowers to pay somewhere between 10% and 20% of their discretionary income toward their student loans monthly.
Loan forgiveness programs are offered by the state but can only be granted under special circumstances. For qualified borrowers, there is a chance that the federal government may forgive part, or even all the federal student loans which means the borrower has no obligation to pay the loan anymore.
For borrowers working in public service jobs, the federal government also offers the Public Service Loan Forgiveness program, another repayment option, but most people who apply for it have been denied.