Student loans are an important way for both undergraduate and graduate students to pay for their college education. While a loan means that the money is borrowed and must be repaid, usually with interest, almost every student takes out a loan to help them get the education they need to enter the workforce and find a great career.
The cost of one year of undergraduate education in 2019 ranges from more than $9,000 per year for in-state students to more than $58,000 every year for students attending out-of-state or private universities. These estimates do not include the cost of education-related expenses, like food, textbooks, and housing.
Even if you or your parents have money set aside for college, that money is not likely to cover the cost of your entire university career. While there are all kinds of scholarships and grants available for students with great academic success, specific skills like playing an instrument, excelling at a sport, or that are based on financial need or merit, these options will likely not cover four years of undergraduate education (not to mention potentially attending graduate school).
When you apply for financial aid, the college or university will often help you find loans, along with other sources of financial help like scholarships or grants. Almost all students qualify for student loans, but it is important to understand the source of the loan, repayment options, and the terms and conditions of the loan.
There are generally two types of loans: those given by the federal government and those provided by private organizations. Both types of student loans have benefits and detriments, so learning more about the sources of your money can help you determine what kind of loan works best for you.
How Student Loans Work in 2020
General interest rates for federal student loans in 2020, regardless of source, range from 4% to 7%. These rates may adjust up or down over time, depending on the economy.
No matter when you take out a loan for college, the interest rate means that you will pay back more over time than you initially borrowed. If you spend several years repaying the loan in small payments, the upfront amount may be affordable for you, but you will end up paying thousands of dollars more than you originally borrowed because of compounding interest press this link. This means you will be in debt for longer.
Understanding the types of loans available to you can help you make smart financial decisions, so you get the best education and career experience possible.
There are two basic types of student loans available for college, university, or trade school: federal loans and private loans. While federal loans are generally considered more forgiving, there are several benefits to private loans.
Federal Loans
These types of loans come from money provided by the federal government. The terms are set by law rather than an institution that might be a for-profit company.
The amount of money you can borrow from the federal government depends on whether you’re an undergraduate, graduate, or professional student, or if you are the parent of a college-bound student.
There are four different types of federal loans, and these also vary in how much money you can get through the loan. The vast majority of all student loan debt in the United States is through federal loans.
- Lower, fixed interest rates keep your payment plan simple
- No need for credit checks, except for PLUS loans
- No need for co-signers or guarantors
- Repayment does not begin until you have completed college or you drop below half-time student status
