Taking on any debt isn’t ideal, and most of our parents strictly forbade us from doing this. But student loans are one of the few loans that most of us working and middle-class kids have to take to afford the ridiculous cost of a college education. Most of us bet on scholarships and other grants in order to fund college plans, but sometimes they only cover a fraction of the cost and the rest has to come out of your pocket. Most of us will eventually enter the workplace with crippling debt and a bad credit score. So, for those of you who haven’t yet gone to college and are thinking about it, here is everything you need to know about student loans.
What are student loans?
They are loans that banks and the federal government lend to students who wish to apply for and continue their higher education. They usually cover college fees, living expenses, books, and everything that a student has to pay during college. According to the federal government, more than 70% of students take out student loans to finance their college education and on average, they owe the system about $30 000 after they graduate. The federal government also has the highest share of student loans on the market and economists believe this is dragging the economy down. In May of this year, it was announced that the total amount of student debt was about $1.2 trillion.
Advantages of student loans:
- Offers support to a student who otherwise wouldn’t be able to attend college.
- Provides flexible repayment plans that adjust to your salary and the average cost of living
- Fixed interest rates.
- Most of them don’t require repayment until after you graduate.
- Lower interest rates compared to private loans.
- No clean credit history requirements.
Disadvantages of student loans:
- May require a cosigner.
- Some students may not qualify, depending on their financial needs.
- Can result in a bad or decreased credit score.
- If you leave your degree course without finishing it, you’ll have to start paying back the loan immediately.
- Private loans’ interest rates may fluctuate.
- The amount you can receive from them is limited.
Tips for taking a student loan.
1. Borrow only what you need.
If you are an independent undergraduate student, you can borrow up to $57,500 for your student loan and if you are a dependent undergraduate student, you can obtain up to $31,000. Never take out a loan that you won’t be able to repay with the job that you’ll get after you graduate. We advise that you borrow an amount that will be around 10% of your future salary after taxes. If you have any doubts, you can always talk to the finance aid office of your college.
2. Opt for a federal loan in lieu of a private one.
As a college student, you can take two types of loans; federal and private. You can get a federal loan after completing the Free Application for Federal Student Aid (FAFSA). It is more profitable as it doesn’t require you to have a credit history to qualify for it. They also have an income-driven repayment system and provide forgiveness that any other private loans plan don’t. There are also two types of federal loans: subsidized and unsubsidized. Subsidized loans amass interest while you’re still in school, while unsubsidized loans are for students who are poor and have financial aid and don’t build up interest while in school.
3. You pay interest and fees on the loan.
You will owe more money than you took for your studies because of the interest rates. Federal loans require you to pay a loan fee and this usually is a percentage of the total amount of the loan. Currently, this fee is 1.057% for undergraduate students, and the fixed federal interest on student loans is currently 3.73%, but this changes every year.
Sound off in the comment section below and tell us whether you plan to go to college after finishing high school.