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Student Loans and What You Should Know

An Introduction to Educational Loans

With rising expenses of education today, a great number of students reach for different types of financial aid to invest in their studies. One of the most popular financial supports to college and university students are student loans. Different from college scholarships and grants which you don’t have to return, student loans are repayable, which means that you have to pay it off during your time at school or after you finish it. Bear in mind that whatever amount of loan you borrow, you will have to return it with interest. In the most cases, there is a grace period of six months after student finishes college and repayment of student loan starts after that period, no matter of you graduated or not. Usually you have ten to twenty five years to repay your loan, depending on the plan you have chosen.

The most popular student loan plans among students are federal loans, which are supported by the government and therefore have better terms and conditions such lower interest rates and more flexible repayment options. In addition to federal loan programs, there are different private student loan plans which have slightly higher interest rates, but represent a good option for students who cannot accomplish student loan for federal government programs.

In order to help you choose the best student loan plan, here are some general information about different student loan programs and repayment options.

Different Student Loan Plans

As it was mentioned before, very popular amongst students are low-interest direct federal loans. The lender is the U.S. Department of Education. You borrow money directly from the federal government and sign only one contract. Furthermore, you can choose between different loan repayment options and you can change your plan at any time if you need to, you just have to contact your loan servicer. Also, you always have online access to your loan account.

Direct Federal Student Loans

Direct Federal Student Loans offer next three types of loans:

  • Subsidized with no interest while student is in school as well as during grace and deferment periods, intended for students with verified financial need;
  • Unsubsidized loans with interest rate of 6.8% charged;
  • PLUS unsubsidized loans with interest charged while student is in school, which are intended for the parents of dependent students and for graduate and professional students.

Federal Stafford Loans

Stafford Loans are fixed-rate student loans with interest of 3.40% for undergraduate and graduate students attending college at least on half-time basis. This type of student loan has fixed interest rate and it’s intended for undergraduate and graduate students who attend school at least as half-time students. Similar as the the previous plan, Direct Federal Stafford Loan plan also offers subsidized and unsubsidized loans.

Federal Perkins Loans

This loan program has fixed low-interest rate of 5% for college and university students. If you choose this plan, you will enjoy nine months grace period and will repay your loan in shorter period of time, because repayment period with this loan option is ten years.

Consolidated Student Loans

With this plan you can replace multiple loans with just one, which can make your loan more affordable.

Private Student Loans

Private loan programs can substitute or work together with federal loans and they vary in terms and conditions. To choose the best borrowing plan, you should consider it all very carefully and get as many information on their rates, terms and condition as it is possible.

You can apply for federal student loan by completing the Free Application for Federal Student Aid, or FAFSA. Furthermore, you need to collect all the documents required, submit a FAFSA online, and remember that this process is free. After processing your FAFSA, your results will be sent to schools you listed on your application and you will get a Student Loan Report.  Under some particular conditions, federal loans have student loan forgiveness option.

Repayment options

With different student loan plans you can choose between a number of available repayment options. Some of they are:

  • Standard repayment plan has fixed monthly payments up to ten years. If you do not choose other repayment plan when apply for the loan, your loan servicer will place you onto this payment plan. This is also the plan the most of the borrowers choose to stay with.
  • Income based repayment follows your income: as your salary rises, so does your repayment amount.
  • Biweekly Repayment Plan offers you to pay half of your monthly payments every two weeks.
  • Extended Repayment which allows you to enlarge your repayment for almost thirty years. But, in that way you are going to pay much more in interest.

There is no doubt that student loans can be very helpful investment in your future, still, you should be aware that taking this loan is a serious responsibility as well, so be sure that you will be able to manage it.

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