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Tips For Understanding Student Loans In College

When college ends, we walk away with many lessons learned, friendships built and broken, a diploma, and a whole lot of debt.  For many students, loans are completely unavoidable to obtain a four-year degree.  Only a small percentage of students are able to graduate debt-free.  

According to the Institute for College Access and Success, in 2015, almost 70 percent of college graduates from public or private institutions did so with substantial loan debt.  Within a ten-year span of time, the average college graduate’s loan balance rose more than 50 percent.  

It is clear why understanding the ins and outs of student loans is vital to the success of students.  Too many inexperienced students do not fully understand what they are signing when they offer up their signature.  Here are a few helpful tips towards a better understanding of student loans.  

There are two different types of student loans

Federal loans:  Loans from the federal government are available to almost anyone and dispersed directly from the federal student loan department.  Federal loans are broken down into three separate categories: direct loans, direct PLUS loans, and Perkins loans.  

Private Loans:  Private loans come from private banks and other financial institutions that are not run by the U.S. Government.  Eligibility is typically based on credit ratings and financial dependability.  

Fill out the FAFSA to apply for federal loans

Students of any age can apply for federal loans via the FAFSA or Free Application For Federal Student Aid.  The most recent version of the application is opened for enrollment on the first of every year.  

The disbursements and awards are first come, first serve, so complete the application as early as possible.  When students are awarded federal grants or loans, their award notifications will automatically go out to the student’s chosen institution.  

Interest begins the day the loan is issued

Interest is a student’s worst enemy when it comes to repaying student loans after graduation.  If it takes a person six years to complete a four-year degree, then they graduate with six years of interest already tacked onto their total debt.  

For this reason, it is good to understand the difference between subsidized and unsubsidized loan agreements.  If a loan is the sort that builds interest while the student is still enrolled in school, then it is a good idea to pay the interest payments as they accrue.

Understanding grace periods

Everyone needs to know that the federal government gives students six months after graduation (or unenrollment) to get situated and begin paying back their debt.  There are also many other ways to push off payments if finances are not what they were intended.

Loan agencies are always willing to help.  Just maintain proper communication with lenders, and they will find a way to make things work.