The holidays are just beginning. But many students must already start preparing for their next academic year, especially financially. The cost of studying can be a barrier to career plans. Some families can afford to pay for their children’s education. For others, a student loan can be a solution. But before you start canvassing banks, it’s useful to be familiar with the mechanisms. So, without further ado. let’s dive into this blog and learn some of the things you need to know about student loans.
1. What is a student loan?
A student loan is a form of financing granted to any student who needs support to be able to complete his or her course (accommodation, living expenses, supplies, equipment, etc.). It works the same way as a traditional personal loan, which is only repaid once the borrower has entered working life.
2. What amount and what term should be negotiated?
Given the specific nature of the student loan, its duration can be up to 9 or 10 years, depending on the bank. As regards the amount, the criteria vary greatly from one bank to another and obviously depend on the course of study followed. In general, the upper limit is around 50,000 to 60,000 dollars, but some institutions offer financing that can go up to 120,000 dollars.
As with any loan, the notion of risk is important. Therefore, the banker will be more inclined to lend a large sum to a student enrolled in a grande école than to a young person starting a university course with more uncertain prospects.
These differences can also be justified by the specific needs of the course of study. According to a past study by Financetesetudes.com, the average request is around 10,000 dollars, but the amount is twice as high for a young person in a business school.
3. What rate to consider?
Generally speaking, banks offer students relatively advantageous conditions. But here again, the profile is decisive. Students from prestigious courses with promising prospects will logically be able to obtain better rates.
They offer the bank more guarantees on their ability to repay and, above all, leave it with the hope of being able to retain a future senior executive who will consume numerous services once he or she enters working life (property loans, top-of-the-range cards, asset management, etc.).
According to a survey on the websites of 5 banks, the rates fluctuate between 0.9% and 1%. Some banks sometimes offer 0 rates. But this is more of a short-term cash advance on small amounts (advance for back-to-school expenses, for example).
4. Which deferment to choose?
A deferment is a period during which the student does not yet repay the capital borrowed. For example, with a deferment of 4 years, the borrower will only really start to repay the loan in the fifth year. Generally, the end of the deferment is matched with the end of the studies.
There are two forms of deferment. The total deferment allows you to pay nothing during the period. The partial deferment consists in paying only the interest. While this may be more complicated for the student to manage, the latter solution reduces the total cost of the loan.
5. Which guarantor should be presented?
By lending to a student who, by definition, has no income (or little income), the bank is taking a risk that it inevitably seeks to cover. It is therefore advisable to prepare this application by providing a guarantee. Parents can, of course, provide this guarantee… provided that their own income is deemed sufficient. If not, it is possible to benefit from the guarantee system set up by the State. Under certain conditions, it covers loans up to 15,000 dollars.
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