Just like getting your high school diploma, getting a student loan could be one of the first steps in your adult life. Student loans will help you pay the cost of your professional education with excellence and you will be able to focus more on your studies instead of worrying about financial problems. Financial aid programs for students at the government or private level offer you different plans so that you can pay off your loans at your convenience. Many student loan consolidation companies also give you the option to combine all your loans into one debt and that definitely helps to get a lower interest rate and surely goes a long way in saving your finances. You should not confuse student loans with scholarship or grant programs. It’s just financial aid that you can take advantage of and pay for once you’ve earned your degree.

Types of student loans

Federal Student Loans

Private Student Loans

Federal Student Loans

Federal student loans are authorized in the United States under Title IV of the Higher Education Act. Both subsidized and unsubsidized loans are directly guaranteed by the US Department of Education or other guaranty agencies. Getting federal student loans is easy and available to all students. There is a grace period (mostly 6 months) and it starts once you graduate or become a less than half-time student. Credit score does not matter on this type of loan and it will be available to you when you apply. Although the annual limit is something that would be variable depending on your status.

If you are a dependent college student applying for a subsidized loan, then the limit for your first year would be $5,500, $6,500 for the sophomore year, and $7,500 for the junior or senior years. If you are an independent graduate applying for a subsidized loan, then for the first year you will get a cap of $9,500, $10,500 for the second year, and $12,500 for the junior or senior years. Subsidized loans are offered only to those students who demonstrate financial need. In this case, the interest is paid by the federal government while the student is able to continue his or her education, and upon graduation, the student will be in debt for the exact amount borrowed. For example, if you take out a loan of $8,000, upon graduation you will only owe an amount of $8,000 with no interest. Unlike unsubsidized loan plans where the student also has to pay the interest. If you take out an unsubsidized loan for, say, $10,000, at the end of your graduation you will owe $10,000 (principal amount) + $2,000 interest, so in total you will have to pay back $12,000. The grace period remains the same on both types, and both are guaranteed by the US government. Most students opt for the grace period option, though you can also start paying off your debts if you want. while in college.

The federal student loan for the graduate program has higher limits.

MORE Loans

Unlike federal student loans paid to students, parents can lend a larger amount to cover any gaps in their children’s education. These loans are commonly known as PLUS Loans (Parent Loans for College Students). Parents are responsible for repayment of this type of loan, and students are equally responsible. If the balances are not paid, the parents’ credit rating would suffer. PLUS Loans do not have a grace period and the repayment process begins immediately.

PRIVATE STUDENT LOANS

Some private financial companies or banks offer these types of student loans and they are not guaranteed by the US Department of Education. Their goal is to combine the best points of government student financial aid programs and offer them to students for that they can complete their education without interruption. However, the interest rates are comparatively higher than federal student loans, but sure there is a grace period that can be extended to more than a year after graduation. There are two other subcategories that the private student loan program is divided into:

school channel

Direct to Consumer

school channel

In this type of loan program, the school coordinates directly with the finance company and also has lower interest rates. These loans are certified by the school, but usually take much longer than expected to be approved.

Direct to Consumer

In this case the loan is paid directly to the consumer and the school has nothing to do with it. This usually has higher interest rates. The only advantage of this type of student loan program is that you can get access to the loan very quickly, in some cases it only takes a few days to get approved.

Student Loan Consolidation

The worst move you can make in your life when it comes to finances is to be under the pressure of undue debt. This really affects your credit rating and minimizes many government facilities that you can only take advantage of if you have a good credit standing. Most consolidation companies do not accept delinquent loans. You should start the process yourself and try to voluntarily pay some amount on time and settle any unpaid amount. You can then consolidate all your loans into one large loan and pay it off. This has the benefit of a comparatively lower interest rate and you can even choose different modes of payment and it can also change on a yearly basis.

Credit rating is something you need to be very careful about. It is the only criteria that counts when it comes to buying something like a house or renting a house. You might even decide whether or not you can rent a car, so make sure you take all the necessary steps to avoid bad debts and that the payment process is on time.