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How do Student Loans Work

You’ve graduated from high school, and now it’s time to take the next step in your education. Everybody expects you to go to college, but nobody is able to tell you how to pay for it. Getting into a huge debt when you’re 20 years old sounds terrifying, but it’s just kind of expected at this point. So yes, you’ve heard about student loans, and you probably know it’s every millennial’s worst nightmare. It’s because future college students are usually not well informed and prepared before applying to a student loan. When you’re young and don’t have a good credit history, and you urgently need a loan, this process could be very overwhelming.

This is why it’s crucial to be well-educated on student loans before starting college. In this article, we will go over the most important facts you need to know about student loan options.

So without further ado, let’s get to it!

What is a student loan?

A student loan is essentially when you borrow money to pay for college. Of course, you’ll be expected to pay it all back. It’s not much different from your usual bank loan, but it does have some unique perks.

A student loan can be used to pay for tuition, books, and many more things you’ll need to graduate successfully.

Types of student loans

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There are two main types of student loans you should be aware of. First, there are federal student loans. These exist in the form of Direct Subsidized Loans and Direct Unsubsidized Loans. Direct Subsidized Loans are granted to students whose families can demonstrate financial need, and their interest is not calculated while the student is enrolled in school. On the other hand, Direct Unsubsidized Loans are accessible to everyone. The interest rate for them is calculated when you start receiving payments. These loans are usually not enough to cover your whole education, and there is an option of upgrading them when you reach a certain limit.

The other type of student loan is private loans. They come with much higher interest rates than federal loans and they require you to prove your financial status and ability to repay the loan first. As undergraduate students are usually not financially stable individuals, a parent or a guardian might be required to cosign the loan.

Your choice between the two depends on your needs and financial possibilities, but it’s of utmost importance to at least know the basic differences.


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Okay, now you know what kind of student loans there are, but what’s much more important is your options of repaying them. Federal and private loans have different options when it comes to repayment.

Federal loans come with various repayment plans. First, you have the standard plan which has a fixed monthly amount and it’s 10 years long. Secondly, you have graduated repayment plans, when the payments start a bit lower, but they increase throughout the years. This type of repayment also lasts about 10 years. The third type of federal loan repayment plan is the extended plans. They are granted to people who have over 30 000$ in student loans, and the repayment period lasts about 25 years. Finally, there are the income-based repayment plans that depend on your income. There are different types of these, but the main point is that your monthly payments will depend on your income.

When it comes to private loans, the monthly amount you’ll need to pay will depend on the facility you’re getting your loan from. Remember, getting a private loan will require you to have a good credit score. If you or your parents don’t meet the financial requirements for a private loan, you don’t need to worry. There are financial institutions that specialize in urgent loans that don’t check your credit history at all. If you’re interested in these types of student loans you can click here for more info.

Can you avoid student loans?

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Yes, you can. Taking a student loan is not a requirement for attending college. While college tuition is expensive, if you don’t want to get yourself into debt at such a young age, there are still ways for you to pay for college without taking any loans.

First of all, not every college costs the same. Private universities and community colleges have an extreme difference in price. Just because something is more affordable does not mean it’s not of high quality. Secondly, if you want to study without being in debt, be prepared to work, and work hard. Start as early as possible and try to accumulate enough cash to get you through the first year at least. You don’t need to go to college immediately after graduating from high school. Other than that, try to find some on-campus work while you’re in college. Working and studying at the same time might be hard, but it’s all gonna be worth it in the end.

Also, make sure to look for any possible scholarships or grants. Do some research, and try to apply for a scholarship if you can. This is probably the best way to fund your education without getting into huge debt.

Finally, make changes to your lifestyle. We all know stories about college students only eating ramen noodles and not being able to afford to go out and have a drink for months on end. Still, when we say to make changes to your lifestyle, this is not what we have in mind. Having a clear budget and sticking to it is important, but don’t ever risk your health and well-being for money. If you’re planning on ruining your health while studying then it’s better that you take a loan. Eat well, sleep well, but try to be economical and don’t spend money on anything unnecessary.

The takeaway

Student loans are a good way of getting enough funds for getting yourself through college. Of course, getting into debt at such a young age is not ideal, but if you’re informed and educated enough, you’re going to be able to find the best possible solution for your situation. There are two main types of loans and numerous ways of repaying them. Whatever you choose to do will depend on you and your specific situation only.

About Stefania Trtica