What You Need to Know About College Loans: Is It A Scam?
College loans are a necessity for most students. And if you’re like most people, you’re wondering what you need to know about college loans and whether or not they’re a scam. The first thing to know is that there are many types of loans available. Federal loans, private loans, PLUS Loans, and student credit cards all have their own benefits and drawbacks.
WHAT YOU NEED TO KNOW ABOUT COLLEGE LOANS
The first step to finding the best loan for your needs is understanding what a loan actually is. A loan is an agreement between you and a lender to borrow money in exchange for interest payments, which will be paid back with interest over time. In other words, it’s debt that you’re paying back.
Loan repayment is usually measured in monthly installments instead of one lump sum payment. This means that the amount you have to repay each month depends on how much you borrowed and how long you want the loan to last.
UNDERSTANDING THE TYPES OF LOANS
There are a few common types of loans you’ll come across while searching for financial assistance.
Federal loans: Federal loans are loans that the federal government provides to help students with their college education. They’re available to students who don’t have the means to pay for college out of pocket and come in three types: Perkins Loans, Stafford Loans, and Subsidized Stafford Loans.
Private student loans: Private student loans offer the same benefits as federal student loans but are not guaranteed by the federal government. The main difference is that private lenders have higher interest rates and require less documentation than federal banks. These types of loans are a great choice for those who don’t qualify for federal loan programs because they can provide more flexibility.
PLUS Loans: A PLUS Loan is an additional loan from your school that’s funded by your parents or other eligible family members. If you have a PLUS Loan, it will count toward your parent co-signer’s FAFSA application when applying for financial aid or finding scholarships at your school. Because PLUS Loans are offered by your school, they offer more tax-free money than private lenders, which makes them a good option if you’re not interested in taking out multiple private loans throughout the year.
FEDERAL LOANS
Federal loans are a good option for students because they come with low interest rates and there are no co-signers. Interest rates on federal loans are capped at 6.8%. You can borrow up to $31,000 per year on your undergraduate degree, or $57,500 for graduate school. If you go over these limits, you may be in violation of your financial aid agreement.
The downside of federal loans is that the amount you can borrow is limited to what’s offered by your school’s financial aid office.
In addition to getting a low interest rate, federal loans are an option for those who do not qualify for private loans because they have a credit history or need collateral. The downside of this is that there is an application process and it may take time to get funded.
PRIVATE LOANS
Private loans are a great option if you are unable to qualify for a federal loan. Private loans differ from other types of loans in that they’re not issued or overseen by the government.
Private loans are also different because they’re not repaid with interest, which means students can put more money into their education than they otherwise would be able to.
Additionally, private loans vary in terms of their length and how often they must be repaid. This can make it tricky to figure out exactly what your monthly payment will be like and how long it’ll take to pay back the loan when it’s due.
These factors can lead some people to believe that private loans should only be considered as a last resort for those who don’t qualify for federal aid. But that’s not true: Private loans can still help you get through school without having to worry about paying off debt after graduation, unlike other types of lending options.
PLUS LOANS ARE A GREAT OPTION
When you’re looking at college loans, one of the most important things to consider is what your repayment schedule will be like. Luckily, there are several options for repayment. If you’re looking for a loan that will be more manageable and interest-free, a PLUS Loan may be your best bet.
A PLUS Loan can only be used for higher education expenses at a school with an eligible program. However, it also offers lower limits on the amount of money you can borrow: $38,500 in federal loans and $65,000 in private/corporate loans. It doesn’t have any fees associated with it except for the origination fee which is between 3-8%.
STUDENT CREDIT CARDS
Private loans and bank loans are often seen as the most reliable source of financing for college. But, they can be difficult to obtain, and they generally charge high interest rates. As a result, student credit cards are becoming more popular.
The main advantage of a student credit card is that it doesn’t have the same restrictions and requirements that banks have. You don’t need a co-signer or collateral to get approved for a student credit card, and you can use it to make purchases with your own money (debit card). Student credit cards offer low interest rates and no debt limits, so you can pay off the balance each month without putting an extra burden on yourself.
On the other hand, these cards also tend to carry higher fees and require more intense monitoring than traditional lenders do. If you’re not careful with how you use your credit card, it could end up costing you in the long run. The responsibility is yours to make sure that those costs are worth what you’re getting in return.
HOW MUCH DOES IT COST?
Before you even think about applying for a loan, it’s important to consider how much it will cost you. It’s easy to get wrapped up in the idea of getting a loan and being able to afford something new, but it can be hard to keep that excitement when you realize exactly how much debt you’ll end up with.
Most loans require monthly payments until they’re paid off. Loan payments vary depending on the interest rate and length of the loan. Your monthly payment will also depend on your income level, credit score and whether or not you’re still enrolled in school at the time the loan is issued.
The repayment period for federal loans is usually between 10-30 years. That’s a long time to pay back any amount of debt! But there are different types of loans available for people who want to repay their loans faster, like PLUS Loans or private student loans.
INTEREST RATES
The interest rate on a loan is the cost of borrowing money. For example, if you want to borrow $1,000 at 5% interest and give the lender $50 back each month, it will cost you a total of $1250 over the course of your loan.
In college loans, there are two types of rates: fixed and variable. Fixed rate loans have a set interest rate that is guaranteed throughout the duration of your loan. Variable rates change based on market rates as well as your personal credit history.
Fixed-rate loans are typically more expensive than variable-rate loans because they lie in place for an entire term and will not adjust with changing market rates or your personal credit rating. However, these types of loans may be less risky because they do not fluctuate with market conditions.
FEES AND CHARGES
The fees and charges of a loan are just as important as the interest rate. The fee or charge is the percentage of your outstanding balance that you’re paying on a monthly basis to get the loan, which can be anywhere from 1 percent to 8 percent.
The fees and charges vary widely compared to loan type and lender. For example, student loans from private lenders may have lower rates but higher fees than federal loans. Interest rates on student credit cards are generally more affordable than other loans because of their low fees.
Although there isn’t a clear answer on which type of loan you should choose, it’s important to know what you’re getting for your money. Knowing about the costs associated with different loans will help you figure out which one works best for you financially.>>END>>
Whether you’re a freshman who’s just starting to explore your college options or an experienced student who wants to improve your financial situation, it’s time to learn about college loans. You’ll need to know how much it will cost you each month in order to repay the loan back with interest. All of these factors can make a big difference when deciding which type of loan is best for your situation. That’s why we created this guide on everything you need to know about college loans so that you can make an educated decision without the risk of being taken advantage of.