You are probably aware of the existence of student loans. If you are not fortunate enough to not worry about money, you probably have a couple of questions on your mind. Here, we will try to answer all of your questions about student loans, whether you need them, and what might help you pay out the debt.
Why Do Students Take Out Loans?
The first thing people might ask is — why do students take out loans? The answer is simple. Pursuing higher education in the U.S. is rather expensive. There aren’t many students that can afford this type of expense, and paying for college out of your own pocket is almost considered a luxury.
This means that less fortunate students are faced with two options. They can either give up on their education, which might affect the rest of their lives, or get a loan that will help them pay for college. Once they finish their education, they will have higher chances to find a better-paying job, which will allow them to pay the debt.
Of course, all of this sounds great in theory, but repayment plans can be quite difficult to manage, and many people struggle for years with their loans.
What Are the Types of Student Loans?
There are several types of loans you can get if you are looking for this option. There are federal and private student loans. Naturally, there are a couple of subcategories of each of these types, as well as additional repayment options.
Federal student loans are offered by the government, and private ones are offered by banks, states, and credit unions. Since the government will provide the loan, this means that Congress is the one deciding interest rates. What makes federal loans great is that you don’t need to have good credit or a co-signer. Nearly any student can get a loan as long as they have a high school diploma.
Furthermore, there are four types of federal loans — direct subsidized loans, unsubsidized loans, Perkins loans, and PLUS loans.
When it comes to private lenders, you will need to provide proof that you will be able to repay the amount. Most commonly, good credit is enough, and you can always find a co-signer that will be responsible for your loan in case you are unable to repay.
Private loans are available for additional categories like bar exams, for international students, medical students, those for people with bad credit scores, state, credit unions, and many others. Each of the loans will have different pre-requirements.
Finally, there is an option for students that have shown responsibility when it comes to paying. A private lender will pay off the entire debt and offer them a new payment schedule. Based on the loan amount and type, you might be forced to pay higher interest rates.
How Much Do You Really Need?
One of the most important things to know is the total amount of money you’ll need. So how much do you need? Do you need a student loan? Well, it depends. There are numerous factors that may affect the total amount. Firstly, how much do you need to pay for college? There are so many different universities, and their prices can vary.
It also depends on your finances as well. There are a couple of ways to get money instead of loaning it. This includes scholarships, grants, work, and so on. Any amount of money you have will lower the size of the loan.
To get a general idea of the total cost, you should know that the average loan last year was around $30,000. It is important to mention that this is the size of the loan and not the cost of attending a university. The size of the loan includes interest rates and additional costs that you might need to pay along the way.
Pros and Cons of Student Loans
Let’s start with the obvious one. Student loans will allow you to attend college. Those that aren’t fortunate enough to be able to afford it will have student loans as the only remaining option. Since you can get an amount of money that would otherwise be a dream, you will get an opportunity to go to a better school. This boost in your finances can make a world of difference for your future.
However, getting a loan doesn’t mean that you will only pay for a year at a university. It also means that you can pay for a room, tuition, board, books, and anything else. When you start paying off your loan, you will start building credit.
Of course, there are cons as well that you need to consider. Firstly, student loans can be difficult to pay off. It also means that you will start your life (after college) with a debt, which can be quite depressing. For the next couple of years, the loan will be your number one priority, and you will be unable to focus on other things in your life.
Moreover, it is nearly impossible to get out of debt if you are unable to pay, which can be a major problem for some people. Finally, if you default on your student loan, it can completely tank your credit score.
Things You Need to Consider
As you can see, there are pros and cons to getting a student loan. It is completely up to you to decide whether you want this, but there are a couple of things you need to consider. Getting a student loan is easy, but the main problem is paying your debt off. However, it is not impossible. People are doing it every day, and you can do it as well as long as you plan everything carefully.
This means cutting unnecessary costs, having monthly payment schedules, and so on. Try talking to other people who have had experience with loans. They will be able to tell you how they managed to achieve everything, and they might be able to help you.
The most important thing is to calculate everything. This includes interest rates, additional costs, and everything else. You need to know how much you’ll need to pay in the end and plan accordingly.
Also, don’t worry — student loans are not due as soon as you graduate. There is always a grace period to allow you to get back on your feet before you start paying back.