It is a well known fact that in the US, student loans are used by many to access higher education. This aid is used by majority of American students to cover their costs of attending college. Recent research shows that there’s been an increase in the number of people opting for student loans as the college fee and relative costs have increased.
The main types of student loans are federal loans and private loans. Federal loans are subsidized and usually the government pays the interest while the student is studying.
Benefits of federal loan:
• Loans are offered irrespective of the credit history. As most students have no credit history, this is a boon.
• Approval is automatic if the student meets the program requirements.
• Students are not required to make payments while enrolled
• Students with some kind of disability have the possibility of their loans getting completely discharged.
Downside of federal loan:
• Federal loans are subsidized at the undergraduate level only.
• Student loans cannot be discharged through bankruptcy.
• If students drop below the half time status, no more grace period is provided and repayment must begin immediately.
• Amounts of both subsidized and unsubsidized loans are limited.
• Loan discharges are considered taxable by the IRS.
Private student loans have higher limits and payments begin only after graduation. As expected, the interest rates are higher than the federal loan, rates of which are set by the US Congress. Many view private student loans as the last resort option, owing to their higher interest rates, multiple fees and lack of borrower protection.
The current status of outstanding student loans is a staggering number- amounting to trillions of dollars. When a student or their parent borrow money for college, they might not be considering all aspects of paying back the same. Outstanding student loan colors ones ability to qualify for other loans at a later point in their lives. Few important aspects to be kept as guidelines while applying for student loan are – anticipated annual income upon graduation, original loan amount, annual interest rate and initial payment period. Using these as a yardstick while applying, would to a large extent, diminish future difficulties.
Both the public and the private sector have been supplying options for Americans to rid of their student loan problem. Federal student loans provide the possibility to reduce the monthly payment during times of economic crisis. Private sector banks and lending institutions also offer many refinancing options for student loans.
It is recommended that students explore their federal loan options first and only upon reaching the borrowing limit, consider private loan options.