Financing higher education often demands students to borrow money, leading to the acquisition of an education loan. These loans are designed to support students by covering expenses including tuition, books, utilities, and living expenditure while they're pursuing a degree. The repayment of these loans is usually deferred while the student is attending college and may extend up to six months after graduation.
Education loans are primarily for the pursuit of academic degrees at certified colleges and universities and are borrowed either from the Federal government or through private-sector lending. Historically, Federal loans carry lower interest rates, with some even offering interest subsidies while the student is enrolled in college. Private-sector loans typically require a more traditional application process and usually come with higher interest rates compared to federal loans.
Education loans are broadly categorized into Federal and private loans. Generally, students prefer Federal loans to bear their education expenses. Applying for Federal loans starts with filling the Free Application for Federal Student Aid (FAFSA). Depending on the applicant's status, particularly about their dependency on their parents, supplemental paperwork might be necessary. The eventual loan amount is largely influenced by the cost of attendance at the student's chosen institution.
Various Federal student loan types exist - direct subsidized, direct unsubsidized, and direct consolidation loans among others. The funds from these loans are initially used to cover tuition and other academic costs, and any leftover funds are provided to the student. For students availing subsidized loans, their interest will be covered while they're studying, provided they maintain good academic standing.
On occasion, the students might be encouraged to acquire extra funds through private loans in addition to the Federal loans. This category includes state-affiliated lending nonprofits and institutional loans issued by the schools themselves, with the application process similar to private-sector loans, likely necessitating a credit check.
While the debt accrued from financing college education could understandably be overwhelming post-graduation, consolidating them might be a viable option. Multiple Federal education loans can be merged into a single direct consolidation loan. Also, a few private lenders offer loan consolidation for both federal and private loans together into one private loan. However, such consolidated private loans waive their eligibility for select federal programs concerning loan forgiveness and repayment.
Additionally, employers are increasingly integrating consolidation services and student loan payment benefits into their employee benefit programs, providing additional support for managing student loan debt.
Before signing up for education loans, students should spare a thought and consider all possibilities, aiming to reduce the potential burden of future debt. Opting for part-time work, work-study offers, choosing an affordable school, seeking jobs with tuition reimbursement benefits, and applying for scholarships are some alternatives and viable solutions for reducing the loan size. Once graduated, finding a job that could provide help with student debt could be beneficial.
Notably, occasionally, students might end up with an excess in their education loan account, perhaps due to a surprise scholarship or a gift from a relative. While it's tempting to use these extra funds for leisure, it's strongly advisable to use them to reduce the debt. Particularly while dealing with government-subsidized loans, misuse of funds could lead to legal repercussions.
Student loans are unsecured installment debts, which implies that they don't tie in any physical assets and are required to be paid back over a certain agreed timeframe in fixed installments. There are various ways to better manage student debts, such as targeting the loans with the highest interest rates first, paying down additional principal whenever possible, and exploring options for debt forgiveness.