Financial aid like federal and bank student loans makes the high costs of education more affordable. Check our post to find out which type works best for you.
Understanding the Different Types of Student Loans (Header 1)
There’s no escaping the fact that higher education is expensive. That’s why the majority of students seek financial aid to make it somewhat affordable. Apart from grants and scholarships, funding options like bank student loans serve as one of the most common options nowadays. Here are some things that you need to know if you’re interested in applying for one.
What is a Student Loan?
A student loan is a form of funding that can be acquired from the government and financial institutions. It can be used to pay for school-related expenses like tuition fees, books, boarding, and so on. It can be paid anywhere from 10 to 30 years, but keep in mind that repayment terms may vary depending on the lender.
What Are the Different Types of Student Loans?
If a scholarship, grant, or work-study program is not enough to cover college costs, a loan can be used as supplemental funding. But, before you apply for one, it’s important to understand the different options that you can explore.
Federal Student Loan
This funding is offered by the government. The good thing about this is its lower interest rate and more flexible repayment term compared to private loans. Here are the different options available to students:
- Direct Subsidized Loan
This is meant for students with great financial needs. The government covers a portion of the loan interest for the duration of the person’s schooling. After you graduate, payment can be deferred six months after you’ve left school.
- Direct Unsubsidized Loan
This type can be acquired by both undergraduate and graduate students, regardless of their financial needs. However, unlike subsidized loans, you accumulate interest the moment you receive the money.
- Direct PLUS Loan
This type of loan can be taken out by an undergraduate’s parents or a graduate student. They come with numerous benefits like attractive interest rates and repayment terms. In some cases, it also allows borrowers to receive funding for the full cost of schooling.
Private Student Loan
This funding option can be obtained from financial institutions like commercial and cooperative banks. Students can apply for private loans aimed toward specific purposes. Here are some examples:
- Bar Exam Loan
This loan covers the education costs of law students and even graduates who are studying for the bar exam. Repayment terms can span from a year to 20 years, depending on the lender.
- Medical School Loan
This funding option is designed for students who are taking up their residency. To qualify for one, the applicant or at least the co-signer must have a good credit standing.
- International Student Loan
If you’re a non-U.S. citizen, then this is the right loan for you. However, it’s important to note that a co-signer who is a U.S. citizen is often required to be able to qualify for one.
- Student Loans without a Co-Signer
While most private lenders require a co-signer, there are those who do not. If you want to qualify for one, you must be able to demonstrate that you have the capability to make repayments on time.
Student Loan Refinancing
This financing option is designed for graduates who have displayed exceptional payment capabilities. The lender will cover your existing loans and provide you with a new one that has a lower interest rate. This funding, however, comes with strict eligibility guidelines. For instance, the applicant must have a credit score not lower than 600. If you lack in this department, you can consider getting a co-signer.
The Bottomline
Financial aid like federal and bank student loans offers relief for the high costs of education. But, keep in mind that this type of funding will only work in your favor if repayment terms are met accordingly. Otherwise, you’ll be left with a mountain of debt. It’s advisable to explore other options like scholarships and grants first. Once these have been exhausted, only then should you consider taking out a loan.
If it’s your first time applying for a loan, it’s always best to consult a financial advisor. Taking this extra step will help make the application process more pleasant for you. More importantly, you can secure a loan that will work best for your specific needs.