What Are Student Loans?
Money that needs to be repaid by the borrower, with interest.
When you apply for financial aid, you might be offered loans as part of your school’s financial aid offers.
Just because it is offered to you it does not mean you have to accept loan money.
Some Terms to Know
Principal
The original amount of money borrowed through a loan, not including interest.
Interest
Loans come with interest. This is an additional fee on top of what was borrowed originally.
Deferment
A temporary reduction or postponement of payments on your loans.
Grace Period
The time after leaving school when you are not required to make loan payments.
Providers
Student loans can come from a number of different sources. There are private student loans and federal student loans. Federal student loans typically have more benefits.
Federal Student Loan
Money that is borrowed from the government to help pay for school. Typically, these loans become available through completing the FAFSA.
Private Student Loan
Money that is borrowed from non-governmental institutions (such as banks, credit unions, or other lenders) to help pay for school.
Federal Student Loan Perks
Typically, federal student loans are better than private student loan options because they come with more benefits. If necessary, it is recommended to use all federal student loan options before even thinking of turning to private loans.
Perks of Federal Student Loans
Perks of Federal Student Loans
- Lower interest rates
- Repayment plans based on income
- Possible loan forgiveness
Federal Student Loan Options
There are a number of different federal student loan options that may be offered to you. You do no have to take out everything. These are only your options.
- Subsidized Loan: federal loans issued to students based on financial need.
- Unsubsidized Loan: federal loans issued to students not based on financial need.
- Parent Plus Loan: federal loans issued to parents of dependent undergraduate students to borrow and pay on their behalf.
Federal Student Loan Limits
Additionally, there is only so much money in federal student loans that you can take out per year and for the total duration of your undergraduate education.
Conclusion
Loans aren’t meant to be scary, just another option as part of the financial aid package you may receive. What matters is that you understand them as you evaluate your options for funding your education.