A student loan is a kind of allocation designed for students of any division to bear up with their college, school, and university expenses. In other words, student loan helps students to get a quality education from a recognized institution.
For most scholars, getting a quality education means getting admission into the top institution. However, the problem arises when top institutions cost higher than usual schoolings. Therefore, students opt for scholarships, grants, or loans to get an education.
Student loans are designed for making up for the education expenses like tuition fees, books, accommodations, meals and other academic life essentials. Student loans act as a bridge to fill the gap that costs education expenses and shortage of amount.
Parents often invest money in Mutual friends or make fixed deposits for bearing up the cost of student educational expenses. But, even after doing all such things, they often experience a shortage in money for meeting the cost of top institutions. Therefore, parents opt for student loans that can provide an excellent education to their children to build up a better career.
Researchers have noted that the expense of education is increasing at a gradual level of 15% every year. For instance, an MBA degree costs up to 20 lakh or more. Now you can make a tentative calculation of if a parent starts investing or saving Rs 2000 per month for around 15 to 20 years. The maximum amount that will be raised is approx Rs. 12.5 lakh. This amount is still short for a degree in MBA. In such cases, parents opt for taking student loans to fill up the shortage.
According to the data and analysis conducted by the Institute for College Access and Success, nearly 70% of college students take the assistance of students loan to pay school-related costs.
1. To Whom Student Loans Are Granted?
Student loans are primarily granted for students who are seeking higher studies. However, parents can also opt for student loans if the student is undergoing school education and cannot fill up the required criteria independently. With student loans, learners can stand in this competitive world to secure the seat in the best institutions.
2. What Does a Student Loan Usually Cover?
Student loans are taken to cover up an academy’s tuition fees where the learner is enrolled. However, most student loans also cover – textbooks, necessary equipment, dorm rent or private rent, meals, transportation, etc.
3. Types of Student Loans
Student loans are of basically two types. Two types of student loans include – Federal Loan Options and Private Student Loan Options. However, there are also divisions under these direct student loans.
- Federal Student Loan
Federal student loans are provided directly by the government to the students for educational purposes. This student loan class is further classified into Direct Subsidized and Direct Unsubsidized Loans.
- Direct Subsidized Loans are provided to those students who need financial help. In this form of student loan, the provider doesn’t charge interest for at least half a term when enrolled in the institution. Families and students who can showcase their monetary requirements will receive this federal student loan.
- Direct Unsubsidized Loans are also a part of federal student loans. However, these student loans are not provided to students based on the financial requirement. These direct unsubsidized loans are open for undergraduate and graduate students to get a quality education. In terms of interest acquisition, this category of student loan charges interest at the point when the loan will be disbursed.
To be noted, both these student loans come with annual limits. Therefore, it might not be possible for students to make it up to all the expenses for the entire term of education. However, there are always options available for students. In cases, students and parents access the limit of these loans, they can also go for direct grad plus loans and parent plus loans.
In direct grad plus loans, the interest rate and operational fees are higher than direct subsidized and direct unsubsidized loans. This higher interest rate is one of the primary reasons individuals overlook this loan.
- Private Student Loans
This is the second primary type of loan designed for students to help bear educational expenses. However, this form of loan is provided by non-government organizations, private platforms, or other financial institutions.
Under this student loan, the applicants must pass a credit and income assessment to demonstrate that they can refund the loan amount along with the interest rate. Therefore, parents or guardians often take private student loans that meet the required criteria to repay the accepted amount. While taking personal student loans, the loan will appear on the credit bureau data for both the student and the one granting the loan amount.
In private student loans, you can apply for a loan at any moment. You can choose your favourable interest rate and repayment mode. There will be varied repayment options available under this loan.
4. Documents Required for Taking Student Loans
The application process for taking a student loan is as simple as it sounds. There are certain mandatory documents that students have to submit while applying for any loan.
The list of mandatory documents include-
- Students must submit an offer letter issued by the institution.
- The application form for any loan category
- An approx. amount of expenses for the education
- Verified schooling or other degree certificates
- Address proof, passport etc.
- Financial income report (when required)
5. When to Repay Your Student Loan Amount?
One of the often asked questions for a student loan is when to pay them back? To answer this, you have to understand that federal student loans usually provide a span of 10 to 12 years to repay the student loan. In terms of private student loans, the consigner provides different repayment durations.
Therefore, students or parents taking federal loans can pay it back after 10 to 12 years. However, if parents and students start repaying loan amounts at even subordinate rates, they are less likely to bear the higher interest rate in the long term.
Moreover, you have to understand the interest charged on loans. The interest rate is the additional amount you have to pay along with the loan amount. In the long term, the interest rate gets higher. Therefore, takers should pay the loan back quickly to pay less extra money.
Student Loan Repayment Plans:
There are several plans under which a student or parent can repay the student loan amount. The plans include-
- Standard Repayment Plans: This is a student loan repayment plan under which the government or the lender provides you with a set monthly payment amount. For instance, under a federal student loan, you can get a ten year of term plan to repay your loan amount along with the interest rate. However, as we have already mentioned, the term plan for a private student loan will differ according to the set criteria by the lender.
- Graduated Repayment Plans: Under the graduated repayment plan for student loans, the receiver will have to repay the loan amount within ten years. The limitation under this payment scheme is that the interest rate gradually increases every couple of years.
- Extended Repayment Plan: This loan repayment plan is used by those clients who have still $30,000 as an outstanding amount to be paid. In such a scenario, the extended plan can increase the students’ ten-year repayment window up to 25 years.
There are also other repayment plans like income-based repayment plans, Income-Contingent Repayment Plans, Income-Sensitive Repayment Plans, etc.
However, students do not earn much to repay the loan amount during educational days. Therefore, at times it becomes challenging to refund the student loan amount. Keeping this point in concern, there are also other options for students to gain funding that are not liable for repayment.
Students can choose options like looking out for scholarships provided by different organizations for helping students to get higher education. The best part of scholarships and grants is that they are not liable for a refund. You can find eligible scholarships that can help you get better institutions and degrees.
There is a gap between aid received and expenses even after all these options. Therefore, most students go out looking for student loans. If you are sure about having a bright future and ensuring to repay the student loan amount within the repayment period, you can surely choose the loan option.
If you want to know more regarding federal loans, you can visit the website of Federal Loans, the official website of the U.S. Department of Education. According to the period, this website will provide explicit knowledge about student loans.