CollegePaying for College

College Loan Breakdown

What is a Student Loan?

A student loan is money that you borrow to help pay for school with the expectation that you will pay that money back in the future. Student loans don’t differ all that much from any other type of loan. However, the process of obtaining and repaying a student loan has some unique attributes.

How to Get Started:

To get the best loans, follow these steps in order: Complete the FAFSA. It can qualify you for federal loans, which usually have the best terms. Contact your college’s financial aid office to ask about loans through your college. Check with the U.S. Department of Education to find out about state loans.

How Do Student Loans Work?

Your student loan might be the first loan you’ve ever received, so keep in mind that it’s not just how much you borrow—it’s how much that amount costs in the long term. The interest rate—the cost of taking out your loan—directly affects the long-term cost of a loan. The amount of interest is calculated as a percentage of the amount you borrow and added to your overall owed cost. Depending on the type of loan, interest either accrues from the time you take out the loan until you have completed the repayment plan, or begins accruing six months after you graduate.

Who Provides Loans?

There are three main sources of student loans:

  1. The federal government lends almost half of the amount of borrowed money annually.
  2. State agencies offer college loans.
  3. Private organizations like banks, other financial institutions, foundations and colleges may offer loans to students. There are limits for the amount of federal loans and some students might need more assistance to cover the full cost of college and be required to seek out a private or PLUS loan (which is a loan available to the parents of an undergraduate).

When Do I Start Paying Back My Loan?

Repayment terms on student loans vary based on the type of loan. Federal student loans are often designed to be paid off within 10 years, whereas private student loans might differ based on the lender’s terms. Students usually won’t have to begin making their federal student loan payments until 6 months after graduation.

How Much Will I Owe Each Month?

This amount will differ for each student based on the amount they borrow and their interest rate. The minimum monthly payment will be a combination of a percentage of each individual loan amount all combined into one monthly sum.

Don’t Borrow More Than You Need! You don’t have to borrow the entire loan amount you are offered in an award letter. No matter how good the terms of a loan are, anything you borrow now will have to be repaid, plus interest.

Loan Lingo Defined

Unsubsidized: A student loan in which the interest starts accruing the moment you or your school receive the loan funds.

Subsidized: A student loan that does not accrue interest while you are in school.

Direct PLUS loans: A Federal Loan that is available for graduate students and parents of dependent undergraduate students—these have a fixed interest rate and are not subsidized.

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