The idea of paying for college is stressful for students and their parents alike. Add to that the complexity surrounding financial aid packets and student loans, and it’s no wonder many people feel overwhelmed. To help you navigate through these mysterious waters, and provide you with some peace of mind. Here is an overview designed to answer the question, how do student loans work. 카지노사이트
In this article, we will cover the different types of student loans, how they work. Including interest rates and their impact on students’ payments, and explain how you can simplify your search for the best student loan options.
STUDENT LOANS SHOULDN’T BE YOUR FIRST CHOICE
In no uncertain terms, student loans shouldn’t be your child’s first stop when it comes to paying for college. Free money, like grants and scholarships, are always preferable to loans.
Grants are often awarded based on your student’s FAFSA. And they are given out on a first-come, first-serve basis to those who qualify. So, make sure they have theirs finished as soon as possible for each school year, or they could miss out on these excellent opportunities.
Scholarships are different. They are awarded based on criteria set by the organization sponsoring the scholarship. Additionally, the vast majority require students to apply directly to be considered. Application requirements vary, and some options are limited to applicants with specific criteria. However, there are a lot of them out there, so your child likely qualifies for more than they realize.
The best part about scholarships is that students can apply for them all the way through high school AND college years. So if your child needs loans for the first year. They could possibly secure scholarships for the following years and reduce the amount they need.
If you would like to learn more about how your student can score scholarships, join our free webinar for parents and students. It’s a great first step towards helping them avoid student loans. 안전한카지노사이트
WHAT IS A STUDENT LOAN?
You can’t answer the question, “how do student loans work,” without first understanding what a student loan is.
A student loan is a lending product designed specifically for college expenses. They are often easier to obtain than other forms of financing, like personal loans, as it’s generally well understood that incoming college students won’t have much on their credit reports.
Monies granted through a student loan are meant to handle costs like tuition, room, board. And possibly other educational requirements like books and supplies. How restrictive a loan is about how the money can be used. Depends on the exact type of loan involved and the rules set by the originator.
WHAT IS AN INTEREST RATE?
Another important part of the “how do student loans work” question is understanding the interest rate.
The interest rate represents how much you will ultimately pay the lender for the ability to borrow funds. This is money owed on top of the principal. And it isn’t calculated just once. That’s why a $5,000 student loan with a 6 percent interest rate paid over 10 years won’t cost you $5,300 in total, but $6,661.
To explain how this happens, we must explain compounding interest a little bit. If that makes your head spin, bear with me. I explain it a little later under “unsubsidized loans.” There is even a video to help you out!
Another point I want to make is that, whenever graduates make a payment on a student loan, interest is paid first (like a mortgage.) Only the remainder is applied to the principal balance.
THE DIFFERENT TYPES OF STUDENT LOANS
When you are working to understand the answer to the question “how do student loans work,” you need to understand the details about the different forms of loans available. Not all student loans are made equal. In fact, there are three primary types of student loans: federal subsidized, federal unsubsidized, and private.
FEDERAL STUDENT LOANS
Subsidized loans typically offer students the best deal. First, the interest rates are lower, saving your child money over the entire life of the loan. Second, interest isn’t assessed while your student is in school at least half-time. Third, there is a six-month interest-free grace period after they graduate. In the end, less interest means less owed.
Unsubsidized loans still have favorable interest rates, but they don’t have all of the interest-free benefits of their subsidized counterparts. This means interest begins accruing almost immediately once the funds are disbursed, and it will cost more to borrow money this way in the long run.
Here is a simple video showing how unsubsidized loans accumulate interest before students even graduate.
It’s a simple, homemade video (nothing fancy!) but it was one of the most straight-forward in my opinion:
So based on this video, you will see that borrowing $10,000 per year, a total of $40,000 over the four years in college, ends up becoming a balance of $44,011.89. 카지노사이트 추천
Now here is the kicker:
That $4,011.89 in interest is rolled into the balance. So when the post-graduation payments are calculated, interest is going to be based on this NEW balance of $44,011.89 versus only the $40,000. It’s as if the student ‘borrowed’ that interest and therefore must pay interest on it (again.) As you can see, this snowball affect (compounding interest) ends up costing students a lot of extra money. Some loans will end up almost double the amount borrowed by the time they are paid off.
Both federal subsidized and unsubsidized loans are issued by the government. Whether your student qualifies is based on their FAFSA information. The funds allowed is based specifically on your child’s tuition and annual maximums. No matter what, the loans will not exceed the tuitions costs, so these funds won’t pay for extras like laptops or transportation.
The interest rates associated with all federal loans, subsidized and unsubsidized, are set by the government. For loans disbursed between July 1, 2017, and June 30, 2018, the rates are 4.45 percent for both kinds of loan. The government can change the interest rates for loans issued on or after July 1, 2018, but any loans disbursed prior to that won’t see their interest rates change. Essentially, once you have a federal student loan, that interest rate is locked in for the life of the loan.
PRIVATE STUDENT LOANS
Now that you have a solid understanding of the federal loan portion of the “how do student loans work” question, it’s time to move on to private loans.
Private student loans are different. They aren’t issued by the federal government, so their terms and qualifications can vary depending on the lender. Often, it is best to view these as personal loans instead of student loans, because functionally they are more similar to those than their federal counterparts. On a good note, the money provided might be usable for expenses beyond tuition and room and board. So, if your child needs things like a laptop, public transit passes, etc., these can help pay for those too.
Lenders set the rules on private loans they issue, so you want to shop around if you have to go this route. It is sometimes possible to find private student loans with lower interest rates than those offered by the government, but they typically require excellent credit to qualify. For most students with a limited (if any) credit history, that isn’t going to happen alone. The lender will probably need a cosigner, and the credit rating of that cosigner will have a strong impact on the rate assigned to the loan.
If your child can get all of their expenses handled with grants, scholarships, and federal student loans, it is often the better way to go in most cases. However, if these still leave your child short on the money they need, then private student loans are the next option.
GREAT PLACES TO START LOOKING FOR PRIVATE STUDENT LOANS
- Earnest*** – Charges no origination, application, prepayment, or late payment fees. We love minimizing fees! I also personally spoke with their team and found them so helpful and responsive which I think is a huge plus!
- Ascent – Allows borrowers experiencing financial difficulty to enter temporary hardship forbearance for up to 24 months!
- Sallie Mae – One of the most well-known, PLUS cosigners can be released after the borrower makes 12 consecutive on-time monthly payments. For parents who are cosigning, this is a major benefit.
- Credible – Easiest to use
First and foremost, there are great resources to help you compare different student loan options. Using an online tool like Credible can simplify your search for student loans by showing you direct comparisons between different lenders. They are basically marketplaces so you can shop around. I personally found them very user-friendly and simple to use. These convenient tools only require a few minutes of your time and can offer you multiple options for your child’s funding.
LendKey – Great comparison
One other private student loan source that came up often in my search is LendKey. They are often one of the lender options when you look into the loan comparison tools so I thought we’d share some details on them as well.
One neat thing they mention is making small monthly payments while in college. While this may sound challenging, it can be as little as $25 per month. Which helps students avoid the scenario we described earlier where interest builds up and is rolled into the principal once they graduate. Thus, increasing their payments exponentially. If a student can make these payments while in college. It would save them over $5,000 in the example we showed you. I was very impressed with Lendkey.
If you want to see what kind of offerings they have for your situation, you can fill out a quick application here: Click here to view interest rates & apply
Hopefully, with these options, you can shop around because it’s important you and your student hunt for the best deal!