Student Loans Posted byUnigo Staff October 28, 2022March 24, 2023 Student loans can be a great way to finance your education, but it’s important to understand the different types of loans available and how to get the best rates. But what exactly are student loans? How do they work? And what should you know before taking out a student loan? In this blog post, we will answer all of your questions about student loans! What is a Student Loan? A student loan is a type of loan that is specifically designed to help students pay for their educational expenses. Unlike other types of loans, student loans usually have lower interest rates and more flexible repayment terms. This makes them an ideal way to finance your education. Student loans can be used to cover the cost of tuition, books, and other education-related expenses. Most student loans are provided by the government, but there are also some private lenders that offer student loans. If you are considering taking out a student loan, it is important to compare the different options available in order to find the best deal. How Do Student Loans Work? Student loans are a form of financial aid that must be repaid, with interest. Loans are available from the federal government, as well as private lenders such as banks and credit unions. Federal student loans typically offer lower interest rates and more flexible repayment terms than private loans. Students can apply for loans by completing the Free Application for Federal Student Aid (FAFSA). The FAFSA is used to determine eligibility for federal, state, and institutional financial aid. Private student loans generally require a separate application, and may also require a cosigner. Once you have been approved for a loan, the funds will be disbursed to your school to cover tuition and other expenses. You will then be responsible for repaying the loan, with interest, over a period of several years. Depending on the type of loan you have, you may have the option of making interest-only payments while you are in school. However, it is important to remember that failing to make timely payments on your student loans can damage your credit score. If you’re having trouble meeting your obligations, there are options available to help you stay on track, including deferment and forbearance. When considering taking out a student loan, it’s important to understand all aspects of the loan before signing on the dotted line. By doing so, you can ensure that you borrow only what you need – and that you’ll be able to repay your debt in a timely manner. Here are some other important terms to know: Student Loan Interest Rates Interest rates on student loans are set by the federal government and may be fixed or variable. Variable interest rates will change over time, while fixed interest rates will remain the same for the life of the loan. Interest rates on student loans are typically lower than those for other types of debt, such as credit cards or personal loans. However, it’s important to remember that you will be responsible for paying interest on your student loans, even if you defer or forbear payments. The current interest rate for federal student loans is 4.53%. Interest rates for private student loans vary by lender, but are typically higher than rates for federal student loans. Student Loan Origination Fees An origination fee is a one-time charge assessed by the lender when you take out a student loan. The origination fee is used to cover the cost of processing the loan. For federal student loans, the origination fee is deducted from the loan amount before the funds are disbursed to your school. For private student loans, the origination fee is usually added to your loan balance. The current origination fee for federal student loans is 1.066%. Private student loans may have origination fees as high as 5.0%. Student Loan Repayment Term The repayment term is the amount of time you have to repay your student loan. For federal student loans, the repayment term is typically 10 years. For private student loans, the repayment term may be as short as 5 years or as long as 20 years. The repayment term will affect your monthly payment amount and the total cost of the loan. The 2 Types of Student Loans There are two types of student loans: federal student loans and private student loans. Federal student loans are made by the government and have fixed interest rates. Private student loans are made by banks, credit unions, and other lenders, and have variable interest rates. Federal student loans include: Direct Subsidized Loans: these loans are available to undergraduate students with financial need. The government pays the interest on these loans while the student is in school and during deferment periods.Direct Unsubsidized Loans: these loans are available to undergraduate and graduate students. Interest accrues on these loans from the time they are disbursed until they are paid in full.Direct PLUS Loans: these loans are available to graduate and professional students, as well as parents of dependent undergraduate students. Interest accrues on these loans from the time they are disbursed until they are paid in full. Private student loans include: Fixed-rate loans: these loans have interest rates that remain the same for the life of the loan.Variable-rate loans: these loans have interest rates that can change over time.Cosigned loans: these loans require a student and a creditworthy cosigner. The cosigner is responsible for repaying the loan if the student is unable to do so.Parent loans: these loans are available to parents of dependent undergraduate students. Interest accrues on these loans from the time they are disbursed until they are paid in full. When Do I Start Paying Back My Student Loan? The repayment period for federal student loans begins 6 months after you graduate, leave school, or drop below half-time enrollment. For private student loans, the repayment period typically begins immediately after the loan is disbursed. What Is a Student Loan Grace Period? A student loan grace period is a set amount of time after you graduate, leave school, or drop below half-time enrollment during which you are not required to make student loan payments. For federal student loans, the grace period is 6 months. For private student loans, the grace period may be shorter or may not exist at all. What Are Student Loan Repayment Plans? There are several different repayment plans available for student loans, including standard repayment, graduated repayment, extended repayment, income-based repayment, income-contingent repayment, and pay as you earn repayment. The type of repayment plan you choose will affect your monthly payment amount and the total cost of the loan. Other Frequently Asked Questions What Is Student Loan Forgiveness? Student loan forgiveness is when the remaining balance of your student loan is forgiven by the government or your lender. There are several programs available that offer student loan forgiveness, including Public Service Loan Forgiveness and Teacher Loan Forgiveness. What Is Student Loan Consolidation? Student loan consolidation is when you combine multiple student loans into one loan with a single monthly payment. Student loan consolidation can be done through the government or a private lender. What Is Student Loan Refinancing? Student loan refinancing is when you replace your current student loans with a new loan with a lower interest rate. Student loan refinancing can be done through a private lender. How Do I Apply for a Student Loan? To apply for a student loan, you will need to fill out a Free Application for Federal Student Aid (FAFSA). You can find the FAFSA online at studentaid.gov. How Do I Get My Student Loan Money? Your student loan money will be sent directly to your school. The school will then apply the money to your tuition and fees, and any remaining money will be given to you in the form of a refund. How Much Will I Owe on My Student Loan Each Month? Your monthly student loan payment will be based on the type of loan you have, the repayment plan you choose, and the length of the repayment period. What Happens if I Can’t Afford My Student Loan Payment? If you can’t afford your student loan payment, there are several options available to you, including deferment, forbearance, and student loan consolidation.