An education loan is simply a sum of cash borrowed to fund higher education or post-secondary education-related costs. Education loans are designed to pay for the full cost of tuition, textbooks and other educational supplies, and other living expenses while a student is in school. As with all loan programs, education loans come with various repayment options and interest rates. The type of education loan you take out will depend on your individual financial circumstances as well as the specific requirements of your chosen college or university.
Private-sector education loans are available through banks, credit unions, financial institutions, title companies and online lenders. Private education loans have much lower interest rates than those offered by the federal government and many have repayment terms of up to 30 years. Private sector education loans also carry more risk for the lending institutions since they are considered less secure. However, private sector education loans generally have longer repayment periods. These types of education loans are available for almost any purpose including business and professional studies, graduate and research programs, and adult education. Many students also receive federal loans to supplement their private-sector education loans in order to pay for tuition and other educational expenses.
One of the most common types of education loan is the Federal Direct Loan. Federal Direct loans are awarded based on need and awarded directly by the U.S. Department of Education. All borrowers must apply for a Federal Direct education loan through the Direct Loan website. The application process takes about two weeks to complete and there is a short paper work to complete. There are no credit checks, down payment or collateral required for federal loans.
Another type of education loan is the subsidized loan, which is offered by the federal government to its eligible students through state education agencies, schools or private institutions. Unlike the Federal Direct education loans, subsidized education loans do not require the borrower to pay interest during the grace period. Once the grace period is over, however, the borrower is required to pay off his/her interest. This interest rate is usually much lower than that of unsubsidized loans.
For people who are working while going to school, unsubsidized education loans and direct plus loans are best choices. Direct Plus Education Loan Program offers a fixed interest rate and allows borrowers to pay off their loans in about five years. If the borrower’s career prospects do not improve quickly, he/she may be allowed to defer the payment until a better job opportunity comes along. If the borrower lands a job that pays off his/her debt, then the remaining debt will be forgiven.
There are some significant changes in July 2021-junior year 2021 college student loan interest rates due to the economy. Most private student loans will be subsidized. On the flip side, most unsubsidized loans will be interest-only. The government will no longer subsidize any part of the interest. Instead, the government will only subsidize the first five years of interest. After that period, all the government does is end subsidized interest rates on subsidized loans.
Private student loans can have much higher monthly payment amounts due to their longer repayment periods. The average student loan payment for the five-year fixed interest policy is $30, far lower than the current average student loan payment of $50. A fixed interest rate is good if you are planning to major in a field with an inflationary price tag over the next few years. A variable interest rate is good if you are planning on taking advantage of a low interest rate in the future because the future price of your chosen career path is unknown.
A large portion of students borrow money from the government each year. Most private education loans, however, are offered through the banks that they already use for personal banking needs. If you are looking to save money with federal loans, federal student loans should be your first stop.