College Finances - What are Student Loans?
Student loans are basically financial loans borrowed by college students to help in their payment of school fees and miscellaneous expenses. When going into college, a majority of students loan for an amount that can be repaid at lower interest rates and at a longer term than other types of financial loans. Some students also apply for grants and scholarships to supplement their loans.
In the United States, this type of financial aid is issued by the government for students aiming for higher education. When one applies for a student loan, the money is directly paid out the educational institution of choice. Almost every student is qualified for a student loan regardless of family resources, scholarships, grants, and credit history or the lack of it. There are two types of student loans ; subsidized and unsubsidized.
If a student directly applies for his own student loan, there will be no payments made toward the loan in the first six months after graduation. However, if a student enrolls in less than half of he required courses, then he has to schedule repayments of the loan six months after. For students who are still dependent on their parents or guardians, the average loan starts at $5500 for their first year, with an increment of about a thousand dollars each year thereinafter. For independent students, the qualified loan amounts are much higher, by approximately $4000 for each year in school. There is no need to worry about interests while in school since the federal government shoulders the interest fees. The loans will only accumulate interests 6 months after graduation except for unsubsidized loans which will carry over the interest accumulated during college.
If parents apply for the student loan of their child, then the rules will be much different. First, the loans granted to parents are larger amounts, but the prepayments start immediately after the loan is approved.
PLUS (Parent Loan for Undergraduate Student) are the sole responsibility of the parents and the student will not be held accountable for any part of the loaned amount and accrued interest. This application is signed only by the parent and any payments made toward it, or any missed payments, will affect the parent’s credit standing and score, not the student’s.
Graduate students can also apply for the PLUS financial aid, but under their own name. Since they already have more resources and have their own credit established, they can now be held financially responsible for the repayments toward the loaned amount.
The money loaned to students can come from two different sources: the US Treasury and private financial institutions. The advantage of using the latter one is that the terms and conditions that apply are similar to other financial aid programs such as home loans or even credit cards. This means that the borrower can enjoy the same privileges as a consumer. These perks include discounts on fees because of good standing; you can expect lower monthly fees if you pay your loan on schedule and continuously.
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