Let’s Talk: Student Loans

Debt and loans can often feel like the enemy, but not all debt is bad. By borrowing responsibly, debt can be used to enhance your life, allowing us to cover large expenses that we cannot pay at once upfront but can afford over time - whether that be the purchase of a home/car or a pursuit of educational opportunities/degrees.

If you plan to go to college, you may know, it can be a costly endeavor. Most families will most likely need some sort of aid, whether that be financial aid, grants, scholarships, or a student loan. Student loans can help make college a viable option, but like any loan, come with risks. 

Before considering student loans, you should exhaust your other options of financial aid, whether that be scholarships or grants from your school or third parties. Because these do not require you to repay the value of your aid, they are generally a better option than a loan. However, if you still are in need of a loan, here are some things to consider:

Types of Student Loans

There are several different types of student loans, the more common one being federal. Loans are administered through the Department of Education. These offer many benefits, with interest rates being typically fixed, meaning that they will not change throughout the duration of the loan. However, if you fail to pay back your loans, the punishments are harsh. They can include your wage or tax refund taken.

Federal Loans

There are two types of federal loans, subsidized and unsubsidized. With a subsidized loan, your interest accumulated during your education will be paid off whereas your interest will accumulate with an unsubsidized loan.

To apply for a federal student loan, you will first need to fill out the Free Application for Federal Student Aid, or FAFSA. It will ask questions about your family’s financial information and will calculate your Expected Family Contribution, or how much the government thinks your family should be able to pay yearly. After sending this to your school, your school will then provide a letter outlining your financial aid.

Private Loans

Private student loans are another type of student loan. These are provided, as the name implies, by a private entity, like a bank. These are often used to cover any needs that a federal loan cannot cover. In comparison to federal loans, the interest is not fixed, and repayment is generally less flexible, which is why federal loans are usually the first choice.

To repay your loan, you will make monthly payments until your loan is fully repaid. There are some exceptions with loan forgiveness programs but are for special circumstances. There are a lot of factors to take into consideration when searching for loan and credit options. If you’ve determined that you should and want to borrow money, take time to explore and understand the options and commitments available to you.

Easter Egg! Here’s a super cool game that simulates the loan application process to help you out: https://www.timeforpayback.com/

Sources: Investopedia, College Vine