As May 1st approaches, many Nashoba seniors will have to declare where they will be attending college. Whether they plan to attend a 2-year or a 4-year college, these students will be worrying about the financing of their education, with many people planning to take out student loans. Here is a breakdown of the different types of student loans and their benefits and disadvantages.
Student loans are loans specifically designed to help college students cover the cost of higher education. The loan has an interest rate that is set by either the government or the private lender, whichever is providing the loan. The loan amount needs to be repaid, with the first payment often being due in the six months after graduation.
For loans distributed by the government, the interest rates are set by Congress and range from 6.53 percent to 9.08 percent. The variability here depends on the type of loan and whether the applicant is an undergraduate or graduate student. These loans are called public loans or federal student loans. Within these federal loans is another subset of subsidized or unsubsidized loans. A subsidized loan is when the borrower doesn’t pay any interest while they are in school. Only undergraduates are eligible for these loans, and the amount they get is determined by financial need. On the other hand, unsubsidized loans, which are for undergrads and graduate students, require the borrower to pay interest. The student is able to pay back the interest whenever they choose. It can be during school or once they graduate. To apply for either type of federal loan, one must fill out the Free Application for Federal Student Aid (FAFSA). This is an extensive application that is used to determine how much financial aid your family is eligible to receive.
What many Nashoba students will also be considering around this time is private student loans. These are loans issued by banks and other lenders. They typically carry much higher interest rates than their public counterparts. That interest rate can either be fixed, which means that the rate never changes, or variable, meaning that the rate can change over the life of the loan. A variable rate is not necessarily a disadvantage, as the rate could go down or go up. To apply for a private loan, one must fill out an application with the private lender. That lender will decide how much to offer and what interest rate to set. The interest rate is determined based on credit score and information in their credit report. For most students, that will be the credit information of their parents, who will be cosigning the loan.
There are a few different options for paying back student loans. First, graduated repayment. This is when the payments start lower and increase as time goes on. Secondly, there are extended payments. This is when the payment timeline extends beyond the typical 10-minute repayment period. These loans can exist for as long as 25 years. Lastly, there is an income-driven repayment plan. This is when the set monthly payment amount is based on how much the borrower makes.
Overall, students have many options when it comes to financing their education. It can be an overwhelming process, and we hope that students seek guidance from their families and banking professionals. Learning about your options is the first step to choosing what is right for you, and I wish these students luck as they navigate through this next chapter.
