For college or postgraduate students looking for financial flexibility, a student loan is a popular alternative payment solution. It can help them manage their finances better and can help them achieve a less hassle journey in reaching for their dreams and aspirations. However, they have to understand that this kind of loan is not for everyone.
If you are one of those who consider pursuing college degree through a student loan, here are some important things that you should know before diving into this major life decision.
Understanding different types of Student Loans
There are 2 options available for student loans: federal and private. A Federal student loan is funded and issued by the federal government. It has a lower interest rate and is flexible with payment method linked to income upon employment. Under this type of loan, loan forgiveness can also be given under certain circumstances.
One of the advantages of a federal student loan is it does not require a lot from the borrower such as : credit history and co-signer. The terms are also more flexible. However, Federal student loans have origination fees and have borrowing limits for undergraduates.
Private Student Loan, on the other hand can be availed from lenders like banks and other financial institutions. This type requires a proof of ability to pay either in a form of a good credit score or with a co-signer from the borrower. Interest rates for private student loans are also higher, around 3.73%. Also, take note that Private student loans aren’t included in most forgiveness programs, so be a responsible borrower to avoid bigger problems.
Not all federal student loans can cover most of the student’s financial requirements so make sure to choose the one that will perfectly serve you by consulting with your school’s financial desk assistance.
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Knowing your repayment options
College students who avail student loans have to realize that their career path may influence how much money they might make after college and their repayment options are based on their future salary. Many college students only realize this when they already finished college and are about to start paying back the loans.
Also bear in mind that student loan payments do not come right after graduation. The borrower is given six-month grace period allowing him or her to have an ample time in looking for a stable job.
Borrowers have several options in repaying their loans, which include plans based on income level and loan forgiveness programs.
Consider an income-driven repayment plan based on your loan and financial situation if you want to make loan payments more manageable. This type of repayment plan allows the borrower to pay somewhere between 10% and 20% of their discretionary income toward their student loans every month.
There are also loan forgiveness programs offered by the state, which borrowers might also avail upon qualification. Loan forgiveness can be granted under special circumstances. The federal government may forgive part, or all of the federal student loans which means the borrower no longer has any obligation to make loan payments.
The federal government also offers the Public Service Loan Forgiveness program to students working in public service jobs, like teaching or not-for-profit organizations. This is another repayment option but the vast majority of people who apply for Public Service Loan Forgiveness have been denied.