How do student loans work? | StuffIShouldKnow
Getting a college education can be expensive, and for many students, loans are a necessary part of the process. But how do student loans work? In this article, we’ll explore the basics of student loans, including the types of loans available, how to apply for them, and what you can expect to pay back.
Types of Student Loans
There are two main types of student loans: federal and private. Federal student loans are offered by the government and have fixed interest rates. Private student loans are offered by banks and other financial institutions, and interest rates can vary based on your credit score and other factors.
Applying for Student Loans
To apply for federal student loans, you’ll need to complete the Free Application for Federal Student Aid (FAFSA). This application will determine your eligibility for different types of financial aid, including grants, work-study programs, and loans. Private student loans typically require a credit check and may have additional application requirements.
When it comes to repaying your student loans, there are several options available. Federal loans offer income-driven repayment plans, which allow you to make payments based on your income. Private loans may offer similar plans, but you’ll need to check with your lender to see what options are available.
Interest rates are a key factor to consider when taking out student loans. Federal loan interest rates are fixed, which means they won’t change over the life of the loan. Private loan interest rates can vary, and may be based on your credit score and other factors.
In some cases, you may be eligible for loan forgiveness or discharge. This can happen if you work in a public service job, such as teaching or nursing, or if you become permanently disabled. However, loan forgiveness or discharge is not guaranteed and you’ll need to meet specific eligibility requirements.
In conclusion, student loans can be a valuable tool for financing your education, but it’s important to understand how they work before taking out any loans. By knowing the types of loans available, the application process, and your repayment options, you can make informed decisions about your student loans and set yourself up for success after graduation.