Your Guide to Understanding Student Loans

Female Students.Attending college can be a significant expenditure, with a cost that is out of reach for most students to without financial assistance. Student loans can make it possible to receive an advanced education and pursue career goals. Students have several opportunities for loans to help pay for college expenses. Before proceeding with college plans, learn about loan options and typical payment requirements to make college affordable.

Of all of the students attending college in the United States, about two thirds of them accumulate some debt to help pay for their education. Students have the choice between private loans or federal loans to pay college expenses. The funds for federal student loans come from the federal government. The funds for private loans come from lenders such as banks, credit unions, a specific school, or a state agency. Students often benefit from choosing federal student loans because the repayment requirements are based on income and interest rates are fixed so they won't fluctuate with market changes.

Students wishing to apply for federal student loans must proceed by submitting a Free Application for Federal Student Aid, known as the FAFSA. Colleges can assist students with this process. It's also possible to complete the form online and submit it via the Internet. Once it's submitted, students can monitor the process by logging in to their account on the FAFSA website. Financial aid award notices will arrive in the mail to notify students of financial aid decisions. Students exploring options for private student loans would proceed with applications directly with specific lenders, following individual instructions for these processes.

Several different types of federal student loans exist for student funding. These loans include direct subsidized and direct unsubsidized loans. Some key differences exist between subsidized and unsubsidized student loans. Generally, subsidized loans are available for students with financial needs, and unsubsidized loans do not have this limitation. Colleges determine the amount students can borrow. For subsidized loans, while the student is attending college at least half-time, during the initial grace period, and during any other deferment periods, the U.S. Department of Education pays all interest on behalf of the student. Borrowers are responsible for interest payments at all times for an unsubsidized loan. Students enrolled in graduate or professional degree programs can apply for Direct PLUS Loans from the federal government. The federal government also offers Perkins Loans to students with exceptional financial needs.

Interest rates vary for federal student loans depending on the type of loan. The date of disbursement also determines the interest rate for student loans. Congress determines interest rates for student loans. Interest accrual occurs from month to month using a formula for simple daily interest. Federal student loans also have fees charged to borrowers based on the total amount of the loans.

Students must repay student loans in accordance with the loan terms. Some loans will have a grace period during school attendance and immediately after attendance, during which a payment is not required. Interest may still accrue during grace periods, depending on the type of loan. If financial difficulties occur, students might request assistance with deferment, forbearance, or even cancellation of the debt. These processes may reduce the loan amount, they may postpone payments for a specific period of time, or the debt may simply be canceled.

The benefits of college are many, including expanded career opportunities and increased earning potential. Consequently, many students determine that the long-term benefits of an advanced education are worth the short-term costs of debt. Explore every financing option before proceeding with loans to ensure that you choose the type of financing that meets your needs. College financial aid advisers are also an excellent source of student loan information.