Understanding how student loans work
Updated on January 20, 2020
It’s vital to understand how student loans work to help you make the right decision on which loan to take and the amount you need. This also helps you know the terms of your loan agreement to avoid default and debt in the future once you complete your studies. When it comes to sorting out your student loan it can seem confusing at first but don’t worry, we’ve broken it down in this quick guide.
Student loans are available for all students in the United States, regardless of your financial status or credit score.
Types of student loans
Your eligibility for student loans, however, varies depending on several factors such as your credit score and your financial need.
For instance, some lenders will avoid giving you a student loan if you have no credit score history or have a poor credit score. These types of loans are known as private loans, and they work based on collateral.
The collateral for private student loans is your income, in that failure to pay your loan results in garnishing of your wages by your lender. Alternatively, you can go for federal student loans, which are more popular and gave flexible terms as compared to private loans.
The government issues federal student loans, and they offer lower monthly payments and low-interest rates.
Why federal student loans?
It’s wise to apply for federal loans as they have a grace period after you graduate before you start making payments.
Additionally, if you aren’t able to pay your loan after completing your studies, you can apply for forbearance or loan consolidation. Loan forbearance allows you to postpone your payments for a certain period until you’re capable of making the payments.
The only downside to this is that your interest increases during the forbearance period, meaning you end up paying more in the long run. Loan consolidation, on the other hand, allows you to combine all your federal loans into one for more manageable payments.
Student loans can either be directly deposited to your school to pay for school fees, tuition, and dorms or to your personal account. If your loan is deposited in your account, ensure you use them for educational expenses and not pleasure.
StudentLoanify is happy to help you find viable student loans. Contact us today for an unbiased solutions provider.