student loans guideEvery student is terrified with a future perspective to pay off his student debt for the next 10 years after graduation. Nevertheless, getting a good higher education matters the most.

Meanwhile, some American high school graduates apply successfully for a financial aid in form of scholarships and grants,more than 60% of them has no other choice but borrowing money to cover their college costs.

In the United States, the number of student loans is much higher than in any other place. Unlike Europe, for instance, the university education in our country is not usually supported by a governmental funding.

Therefore, while you are searching for a student loans funding, it’s necessary to understand how they work in order to find the best option for you and not end up paying huge interest rates.

In this article, Personal Money Service will set the record straight about everything you may wonder about student loans, from interest rates to places, types of student loans and best places where you can apply for a one.

Who Provides Student Loans?

Technically, it doesn’t matter whom you borrow the loan from. Nonetheless, most of the students prefer governmental or federal programs because they seem to offer better terms than any other lender.

Federal student loans for college (those are Perkins and Stafford) have no particular requirements regarding your credit history and if a student meets the other program demands, he is automatically enrolled with the loan.

student loans onlineMost importantly, making payments before you finish at least half time of college studies is not necessary. Sometimes students are able to receive subsidies from the government, but its number is limited.

What’s interesting, is that there even exist federal student loans assigned to a student’s parents, called PLUS loans.

To private student loan providers, we typically refer banks, credit unions, and online lending services. Even through private lenders require payments only after graduation, they charge higher interest rates and set up in general higher requirements regarding credit history and sufficient income to repay the loan.

How Student Loans Work?

Federal Direct Student Loans or FDLP loans are based on capital of the US Treasury. Their “journey” from the Treasury Department, then to the United States Department of Education, then to the university and only after to the student. More than 80% of all educational institutions in the USA are involved with FFELP.

The maximum amount you can borrow from the government isn’t fixed. The general limit is enough to cover all 4 years of studies. As soon as a borrower starts his repayment, he enters standard repayment system, which states that he has 10 years to cover the full amount of the loan.

In the United States, the number of student loans is much higher than in any other place

 

In several cases, unemployment, you can even stop making payments until you find the job. Finally, if your career is related to teaching or to public service jobs, in certain circumstances, you may even cancel the loan. Private student loan fees and the payment system can differ from one lender to another.

Do Student Loans Have Interest?

As any other existing types of loans, student loans do also have interest. The lender determines interest rates individually. If you’re looking for low interest student loans, then your prime choice would be federal loans with fixed interest rates, which oftentimes can be subsidized or covered by the government.

Some of the interests might be tax deductible. By determining a monthly payment and adding a calculate student loan interest rate, the program determines your fixed monthly bill (its minimum equals $50).

Types of Student Loans

Even though some types have been mentioned above, let’s go over each of the most common types of loans in the USA individually.

Types of Federal Loans:

  1. Perkins loans – your definite number 1 choice. Characterized by a low and fixed interest rate, no limits on your credit records. Nevertheless, they are available for undergraduate and graduate students with exceptional financial need and offer a limited amount of loan.
  2. Stanford loans – provide with the higher amount, in comparison to Perkins and their interest rate can be subsidized.
  3. PLUS loans – likewise standard loans, your parents need to have good credit history and prepare for payments as soon as they receive their loan. PLUS loans, however, give parents an opportunity to cover super large college costs.

Types of Private Loans:

  1. School-channel loans – approved by the school, which received the funding directly from the lender. Offer lower interest rates, but require time for processing your request.
  2. Direct-to-consumer private loans –the loan is disbursed directly to the student (borrower). Meanwhile receiving this type of loans fast won’t make any difficulties, private lenders charge higher interest rates compared to school-channel loans.

How to Get Student Loans?

Wondering how to take out a student loan? For a federal student loan, fill in the FAFSA form (Free Application for Federal Student Aid) and get your Student Aid Report (SAR). Take a look at all financial aid packages and sign a MPN (Master Promissory Note).

Finally, get your loan proceeds from your school as soon as you have your student account. For a private student loan, turn to the bank/credit union/online lender for further information.