A college education is the best investment you can make in yourself. And with student loans becoming a common way for many families to afford post-secondary education, it’s important that students understand their options so that they can make the best financial decision for themselves and their families. Here are six terms you need to know when taking out a loan:
Subsidized vs Unsubsidized Loan
Subsidized loans are those that are paid for by the government, so you pay less interest. Unsubsidized loans are not paid for by the government, so you pay more interest. Subsidized loans are only available to undergraduate students who demonstrate financial need. If you take out a subsidized loan but don’t need it, you may qualify for an unsubsidized loan instead. You can also get both types of loans at once—many students choose this option because it gives them more flexibility with payment options later on in life (see “Repayment Plans” below).
If you need help with your student loans, there are a number of resources out there. One of the best is the Federal Student Aid website—it has a lot of information about various types of loans and repayment plans. You can also contact your school’s financial aid office for specific questions about your university.
Interest rate is the amount of money you pay on your loan’s principal balance. It’s also called the Annual Percentage Rate, or APR. Federal law requires that lenders provide this information to students before they sign a promissory note.
Interest rates are often fixed for the life of the loan, so it’s important to understand what kind of interest rate your student loans have and how they compare with other types of loans available at that time.
Interest rates on federal student loans are fixed, meaning they don’t change over time. However, interest rates can vary depending on the type of loan you have and whether you’re an undergraduate or graduate student. For example: You’re generally charged a lower interest rate as an undergraduate student than if you were a graduate student. Your interest rate may be higher if your school is located in an area with a high cost of living or if you’re studying in a field that’s not typically associated with high salaries after graduation (like fine arts).
Deferment is the amount of time that your loan principal and interest payment is put on hold while you are still enrolled in school. Some college loans also allow you to defer payments during times of economic hardship or unemployment. If a borrower qualifies for deferment, they do not have to make any monthly payments during this time period. This can be helpful for students who may need extra time to pay back their student loans because they’re working multiple jobs or taking time off school for an internship, and would rather use their money elsewhere (for example: food).
Deferments should be used sparingly as they usually result in higher loan balances and higher interest charges when the deferment period ends.
Another type of student loan is a co-signer loan. If you have student loans with a cosigner, the co-signer agrees to pay off the debt if you cannot do so yourself. A co-signer could be anyone who has enough income to cover the payments, but it is usually a parent or close relative.
A co-signer is often needed for most private student loans and some federal loans. If you do not have someone to cosign for you, then a lender will look at your credit history to qualify you. One unique lender is Ascent Funding. They offer co-signed loans like other private lenders do, but they also have non-cosigned loans for juniors and seniors that use factors like GPA and degree program to qualify you, not credit history or current income.
A non-cosigned loan is a type of loan that you can get without a cosigner. These typically have lower interest rates because your credit isn’t being used as collateral for the loan. You don’t need a co-signer or guarantor to take out this type of loan, so there’s no risk if you default on the payments.
While these loans may seem like the best option for young people with good credit, they do have some drawbacks. They usually have higher up-front fees than other personal loans, meaning they make more sense as short-term financing instead of something long-term like car or house payments. Also keep in mind that if you’re planning on having multiple children attend college at once (which many families now do), it might be difficult to qualify for various non-cosigned loans since each child would need their own independent application process and credit check done before receiving any funds from the lender(s).
In general, there are two ways to get approved for an unsecured personal loan: by providing documentation showing how much income will be coming into your household each month (i.e., pay stubs) or by paying off another form of debt such as credit card balances or medical bills first so that lenders see how responsible you are when paying off debts rather than just borrowing money every time something comes up unexpectedly.
If you’re having trouble paying off your student loans, there are a couple of ways to make the payments easier. One option is to apply for an income-driven repayment (IDR) plan. This is where you agree to pay a percentage of your income towards your student loans. You can also choose to pay more than the minimum payment each month if you want.
You can apply for different types of IDRs based on how much money you make and how much debt you have:
- Standard 10-year repayment plan – You pay monthly payments over 10 years until all amounts are paid in full (a total of 120 months).
- Graduated repayment plan – Monthly payments start out lower than they would be under standard repayment and gradually increase during the course of the loan term, usually over 20 years. This option may save money on interest but extend the length of time it takes to repay your principal balance because it allows more interest charges over time than other plans do
- Extended repayment plan – Payments are set at a fixed amount over a longer period of time than other plans. The maximum repayment term for this option is 25 years (300 months). Income-based repayment (IBR) plan – Monthly payments are based on what you can afford to pay, which may be 10% or 15% of your discretionary income
When it comes to loans, it’s important to know all of the terms so you can make informed decisions. When you’re young and inexperienced, you sometimes don’t know what options are best for you. By doing research and consulting experts who have experience in finance, you can make informed decisions about your financial future.