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WHAT IS A STUDENT LOAN?
A student loan is a fund offered by the federal government or banks to parents or students to pay for their educational expenses. Student loans obtained are used by the borrower to pay for tuition, hostel fees, room, books and other expenses. Student loans can also be called educational loans and is categorized into secured and unsecured loans. Though education is very important, most students are unable to afford the cost involved because of its expensive nature. Also, their current income or savings are not enough to support them through their education while others don’t have any source of income, so they opt for student loans. It is crucial to know how to use student loans and how they work before you go ahead to borrow.
Types of Student Loans
There are many types of student loans with different regulations which you might be eligible for. Below are some types of student loans made available through the government of United States.
• Perkins loans: the interest rate on this loan is fixed and low. The borrower’s credit history is not considered in this loan type; however, Perkins loans cannot be accessed by everyone because the supply of such loans are limited.
• Consolidation loans: consolidation loans is a combination of multiple student loans into a unique loan. In the end, the borrower makes a single payment rather than many. Consolidation loans may attract additional benefits.
• PLUS loans: PLUS loans are federal loans which requires a review of the borrower’s credit history. Repayment on the loan starts shortly after the borrower receives the loan. For undergraduates, PLUS loans go to the borrower’s parents, allowing them to cover all the expenses the child needs.
• Stafford loans: Stafford loans are federal loans. Compared to Perkins loans, Stafford loans provides more money and a borrower can easily qualify for the loan. Also, the interest cost may be subsidized. Stafford loans are opened to both undergraduates and graduate students and the loan is given to the students. The loan also comes with flexible payment options and low interest rates. No collateral or credit check is required, and the loan can also be consolidated when the student graduates. Stafford loans are either subsidized or unsubsidized.
• Subsidized Stafford Loans: If you are under subsidized Stafford loan, you start making repayments on the loan after your graduation. The interest on the loan is paid by the government while you’re still in school. Subsidized loans are set aside for families who can prove that they are in financial difficulty and earn about $50,000 or less every year. With subsidized student loans, new students are not allowed to accrue more than $23,000 through the course of your undergraduate studies. The maximum you can borrow is $3,500 for freshmen, $4,500 for second year and $5,500 for third-year students and above but the maximum amount an undergraduate can take every year is dependent on your year in the school.
• Unsubsidized Stafford Loans: interests on Stafford loans accumulate whileyou are still in school, during the period of deferment and grace periods. As a student, you are not obliged to pay the interest accumulating on the loan at that period. If you decide you will not pay, the interest will be added to the loan principal.
• Health Professions Student Loans: There are special student loans available to students reading some medical courses including medicine, veterinary, nursing, and sports medicine with unique requirements concerning the financial needs and area of study. In spite of your field of study and financial shortcomings, you can get an education loan that will cover your educational needs. This goes a long way to lift some of the financial load on your family.
• Private Education Loans: If you have been granted federal loans and the funds are not enough to cover all your needs, you can apply for the Private Education loans. These loans are also known as alternative education loans and look like personal loans than parent and student loans. To be eligible for such loans, you should have a good credit history. It also has fixed or variable interest rate which is lower than credit card debt and higher than loans granted by the government. Other disadvantages of a private loans is that they are not subsidized. Some demand that you start repayments while you are in school with limited forbearance and deferment options.
What Is the Borrower’s Loan Limit?
As a borrower, the maximum amount of money you are entitled to is your Loan limit. Some student loans come with a lower fixed annual and increasing loan limits. Other student loans allow you to take the amount of the full cost of university, deducted by the total amount of the additional student financial aid. Student loans invest into your future, hence can be called a good debt. But it is advisable to borrow little or just what you need since too much borrowing can affect your credit score, credit history and future. You might end up working for years and using much of your income to pay your debts.
How to Apply for A Student Loan
There are a few procedures a student has to go through to apply for a federal student loan. Firstly, he/she must file a Free Application for Federal Student Aid (FAFSA). The financial aid office of the college will receive the loan. With private student loans, the borrower should contact the lender. To be eligible for the loan, the student should have a good credit score, but most borrowers’ credit history is not good enough to qualify them for the loan. For this reason, the borrower can apply with a co-signer who has a good credit and credit history and can repay the debt in case the borrower is unable to. Upon approval of the loan, the borrower will be requested to sign a promissory note in which the loan terms and conditions including the repayment options and interest rate are explained. Federal student loans have Master Promissory Note that lasts for about ten years of continuous enrolment.
How Do I Get Student A Loan?
First and foremost, schedule a meeting with the financial aid office of your school and discuss with them the available aid, if they grant scholarships, scholarship schemes available and loans. Fill the FISA form. The FISA form gathers all information concerning your finances and it is used by the school and U.S. government to determine your need for the financial assistance. Do your best to fill and complete the FAFSA form as soon as possible every year, updating all estimates.
Apply for the aid through the financial aid office of your school and other capable sources. If you receive the approval, you can choose to take part of the available aid or the full aid, depending on your strength. It may also be requested of you to attend an introductory entrance counselling meeting where you will learn how the loan works.
If your loan is a private one, find and complete your application with the lender. Sometimes, your repayments on the loan might not be immediate. It is therefore important to determine when your repayments start so you can adequately prepare for it.
How Does Student Loans Work?
Student loans are specially designed for educational funding. The loan providers understand the importance of the fund in the borrower’s life and for that reason, the package comes with:
1. Easy Approval: most of the students who apply for student loans have poor credit scores or low-income jobs which gives them slim chances of getting approval for any loan aside the student loan. Though Federal student loans naturally does not involve a minimum score, if you have problems with your credit history, it can lead to your disqualification for the loan.
2. Payback Time Benefits: some features offered by student loans are very friendly and allow flexible repayments. Government loans are very good as well, but for flexible terms, private lenders are also options.
3. Relatively Low Costs: the charges on student loans are relatively lower than other loans you might qualify for. The factors that lower the costs include
• Subsidized cost of interest. The government might pay the interest cost for some of the students
• Loans offered through the government of U.S have friendly features that favours the borrower. If you are a new borrower, you shouldn’t be disturbed or burdened about the changes in your repayments or interest you will pay on the loan because it comes with fixed and low interest rates.
• Lenders see student loans as a low-risk loan and to an extent in certain fields, an indication of available revenue to reimburse your loan.
• With Students who have never taken any type of loan, a student loan will help them establish their credit. It is important to pay the loan on time to create an environment where you can qualify for other loans without difficulty in time ahead.
4. Unemployment deferment: federal student loans and a few others offer the borrowers unemployment deferment i.e. they can halt the repayment on the loan until they start working.
5. In-school Deferment: for students to have full focus on their studies, some loan firms allow the student to begin repayments only when they have completed school. Because the loans are subsidized, the interest costs might be paid, keeping your loan balance stable.
6. Limited Income: with federal student loans, your monthly payments required can be adjusted when you are having difficulty in raising the money. You can also sign up for the income-driven repayment plans package to avoid onerous payments.
7. Loan Forgiveness: it is possible your student loans will be forgiven especially if it is a federal student loan. If you constantly make payments on the loan after ten years and are working in certain public firms, you might be eligible for forgiveness. Also, if you are on an income-driven payment plan, you may be eligible for Loan forgiveness after twenty-five years. Take note that balances that are forgiven could be taxed as income.
8. Potential Tax Benefits: the interest a borrower pays on a student loan can reduce his/her taxes. But owing to factors prior to your return and your revenue, you might have limited benefits.
How Can A Student His/her Student Loan Money?
For private student loans, the funds are sent directly to the borrower or the financial aid office of the school. The funds of a federal student loan are also sent to the financial aid office of the school. If the financial aid office receives the proceeds, they will apply it to the charges for the tuition and fees and also the room and board if the borrower stays in a college-controlled housing. If there is any money left, it is refunded to the student so he/she can use it to pay for provisions, books, and other necessary expenses.
Who Provides the Student Loans?
You can get a student loan from several sources. New parent loans and student loans mostly come from federal government through the U.S. Department of Education’s Federal Direct Loan program. Some banks, other private lenders and financial institutions also provide parent and student loans.
What is your loan limit?
Loan limit is the maximum amount of money a borrower is entitled to. Students can be permitted to borrow the entire cost of their college fees, minus the amount of the other student financial aid. Some student loans package comes with a lower cumulative and fixed annual loan limit. Student loans invests into your future and for that reason the loan can be called a good debt. But do not borrow more than you need as it can damage your credit and make your repayment difficult.
How Can I Repay My Student Loan?
When you take a student loan, you will start the repayments when you graduate or drop below half-time enrolment. Most of these loans offer six months grace period, after which repayments starts. For federal loans, the repayment amount is spread over ten years and it is required of the borrower to pay a fixed amount each month. Federal loans extend the repayments on the loan, with longer terms of repayment and payments based on the borrower’s income. Before the repayments on the loan starts, the lender will give the borrower a coupon book for the payments every month. Instead of the coupon book, some lenders send statements to the borrower. Further, you can sign-up for auto-debit where the monthly payments on the loan will be transferred automatically from your bank account to your moneylender. Some borrowers are also provided with a reduction on the interest rate as a form of incentive to sign-up for an electronic billing and auto-debit.
Consequences of Defaulting A Student Loan
A borrower is considered a delinquent if he/she fails to make repayments of the loan when it is due and such practices may attract late fee charges. If you take a private student loan and for 120 days, you haven’t made your monthly payments on the loan, and if you take the federal student loan and for 360 days, you haven’t made your monthly repayments, you are considered ‘‘late’’. You will be in a default and this can negatively affect you. With federal loans, about 20% collection charges will be deducted from every payment you make afterwards. It is nearly impossible for a borrower to get rid of his/her student loans once he/she has been declared bankrupt. The borrower has to sue the lender and prove in court of law that it’s impossible to repay the loans, but it becomes though when the lender is the federal government. About 15% of your state income tax refunds, intercept federal refunds Social Security checks, and wages may be seized by the federal government until the borrower refunds the loan.
Though federal and private loans are made available to all students, more people go in for the federal loans than the private. This is because the funds and repayment programs the federal loans offer supersedes the private loans. private student loans are quite difficult to get, and this is because it comes with some terms and conditions. You should have a good credit and a co-signer. The interest rates on federal loans are usually lower than the private student loans.
One way out of a default is to pay the balance in full but that is almost impossible. When you default on a federal government loan, you will be allowed to rehabilitate your loan. The Education Department and borrower decides on an affordable and reasonable repayment plan. Collection costs of about 18.5% of the interest and principal might be added to the remaining loan balance, making it more expensive. Alternatively, after making few voluntary repayments on time, you can consolidate the loans at one interest rate. As a borrower, you should be aware that defaulting a loan can ruin your credit for a long period of time.
Federal vs. Private Student Loans
Even though you are free to borrow from any source, those obtained through government-oriented programs are very affordable. This should be the first you consider because the loans are borrower-friendly, and you can easyily qualify. If after using the government loans you still have other fees to pay, you can consider a private lender. Private lenders include credit unions, online lenders and banks. These lenders can offer standard or student loans. you can use these loans to cover other important expenses. But note that to qualify for the loan you should have a good credit score and sufficient revenue to refund the loan.
What Are the Best Private Student Loans?
If you are searching for a good private student loan, it is best to shop around for the options available, taking into consideration the:
• Interest rates
• Repayment benefits
• How long the lender has been in the business
Find out if the lender sells its loans and can release co-signer as soon as you confirm you can make payments on time over the stated period. You can also ask your school to suggest good lenders to you. Usually, you can find the lists of private lenders on the school’s website. It is required of the school to enlighten the parents and students on their choices of lenders to enable them to make a good choice.
Before you take a student loan, you should know that repayments become difficult when you borrow more. Student loans are indeed a key to a bright future, but the debt can distort your life. To reduce the burden;
1. Apply for a scholarship and grant. This will reduce money you need to borrow.
2. Apply for a part-time job and use the salary to pay part of the fees, tuition and other costs. Working will also give you an experience that most of your colleagues won’t have till they have completed school. It also makes you grow and mature enough to make good decisions in the early stages of your life.
3. Opt for in-state education and a school with affordable fees. Afterall, the most important thing is to get a good and well-paid job.
4. You can cut-down cost to save some cash with homemade food, used books and low-priced entertainment
Remember you have to pay the principal and interest when you take a student loan, if not immediately, in the future.
If Possible, Avoid Loans
Loans are always debt and as a college student, it is advisable to look for other alternatives to pay your fees without loans. If your hands are tied up, you can follow the steps below to minimize your loans and total debt.
1. File the FAFSA and apply for the federal student loans.
2. Pay your tuition fees with scholarships and grants. These monies are free, so you don’t have to be bothered about a refund. Make use of the scholarship and grant money before you consider the student loan.
3. First count on the funds of federal loans since it is funded by the government of U.S. and offers fixed rates of interest and flexible repayment than the private loans.
If you qualify for a loan, begin with Perkins and Subsidized Direct Loans.
Use federal loans that are not subsidized to supplement the residual college costs. Though interest on the loan accumulates while you are still in school, they are much better as compared to private loans.
PLUS loans have high origination fees and interest rates so avoid them.
Private student loans are controlled by banking organizations. They might offer lesser rates, but they are dependent on good credit scores. Private student loans also offer a few flexible payment plans, fixed or variable interest rates, subject to increase anytime.
Disclaimer: All loans offered through this website are subject to credit and underwriting approval. AfterLoans.ca is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to Canadian laws and regulations. Our lenders lend from $500-$5,000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that Canadian law allows.