A student loan is also referred
to as an education loan. It is a type of financial assistance that should
be paid back with interest. In contrast, scholarships don’t need to
be paid back. Very few students can manage to pay for higher education
without some type of loan or financing.
Types of student loans
Student loans are offered in
three principal categories and they are as follows:
Federal student loans are available
from either the Direct Loan (Ford Direct Student Loans) or the Federal
Family Education Loan Program (FFEL). Federal loans are guaranteed by
the government, but private lenders can also offer these loans. Federal
education loans are more beneficial since these loans ask for a fixed
and affordable interest rate. In order to request for a Federal loan,
you’d have to fill out the FAFSA (Free Application for Federal Student
Aid) form.
Federal regulation fixes the
maximum interest rates and costs that lenders might ask for the federally-backed
loan programs. Nothing stops a lender from charging smaller fees. Many
student loan companies offer a range of student loan discounts to draw
borrowers. Education loans offered by private and federal lenders are
available with flexible repayment terms.
Private student loans are also
known as alternative student loans. These loans are not insured by any
government agency and are offered to students through banks or other
types of financial institutions. You should think about a private student
loan if federal loans, scholarships and grants aren’t sufficient for
you. You might need to bring a cosigner to obtain such a loan.
PLUS loans are offered to parents
of dependent students. The parent has to qualify a credit check.
Besides the three types of
loans mentioned above, a fourth type is also available, which is called
consolidation loan. This loan lets the borrowers combine all their loans
into one for easy repayment. Peer to peer education loans are also available
from some sources and it is considered as a nontraditional type of lending.
Rates and fees on
education loans
Federal education loans are
offered with fixed interest rates. On the other hand, private education
loans carry adjustable interest rates. Consumers should know that private
education loans ask for significant origination fees upfront. These
fees escalate the actual cost to the borrower and lower the amount of
money available for academic purposes.
Borrowing money for higher education is an important responsibility but college is always a smart investment for getting a promising career that helps you earn the best salary in the industry.