Students and their families typically opt for student loans in addition to applying for scholarships and grants. However, when it comes to student loans, misinformation and a lack of knowledge about this form of financial aid oftentimes becomes more of a burden than a solution. Below is basic information that all families of college students should know about in order to make sure they know what they’re getting into.
What is a Student Loan?
Unlike scholarships and some grants, a student loan is not free money. Any student loans that are taken out must be paid back over time. Undergoing this process means you are applying to borrow a certain amount of money from what is known as a “lender.” After the paperwork has been given the green light, you will receive the funds needed to pay for your college education. Once you earn your degree or if you are no longer actively enrolled in a college or university, the amount borrowed from the lender has to be paid back according to the repayment plan.
How Much Money Can be Borrowed?
The amount of money that can be given to a college student is determined by the type of student loan. For example, the two most common types of students loans are private and federal. Private student loans look at a person’s credit score, credit history and a few other factors. The better a person’s credit history is, the more money they can get and vice-versa. There are three main types of federal student loans: PLUS, Perkins and Stafford. Unlike private loans, these take into account factors that directly relate to a student’s educational choices and the costs of their expenses. PLUS loans look at how much a student has to pay for the college or university they’ve been accepted to as well as how much money they are already receiving in other financial aid. Perkins loans look at the same factors as PLUS loans but also taken into consideration how much money the school itself is able to give to students. Securing a Perkins loan can mean getting up to $5,500 per year for an undergraduate student and up to $8,000 per year for graduate students. Stafford loans look at how much financial need a student requires as well as their current grade level in school.
The College Loan Repayment Process
Student loans will need to be repaid if any of the following situations occurs: a student graduates from the college or university, their enrollment status is below half-time or they leave/drop out of school for any reason. Lenders typically offer grace periods, which allows borrowers time to get their funds together to prepare for paying the amount back over time. Some grace periods are between six to nine months.
Repayments also include the interest that has been added to the loan over time. So if you borrowed $25,000 in student loans you will actually pay more than that amount. To avoid late fees/penalties and defaulting on your loan, it is crucial to make your payments on time according to the repayment plan agreed to by the lender. When choosing your student loan type and repayment plan, calculate the total costs and make sure you fully understand the terms and conditions being agreed to, as well as your obligations/duties as the borrower.
