Paying for higher education can be a daunting task for many students. One of the most common ways to finance this cost is through educational loans. However, the process of obtaining and repaying educational loans can be filled with a variety of terms and concepts that may be unfamiliar to those who have not previously taken out a loan. This guide will provide an overview of the types of educational loans available, the terms associated with borrowing and repaying educational loans, and strategies for managing student loan debt.

Types of Educational Loans

There are two main types of student loans: federal loans and private loans.

Federal educational loans are offered by the federal government and have a fixed interest rate. These loans have a few repayment options, including income-driven repayment plans. These loans also offer loan forgiveness and discharge programs. The most common federal educational loans are the Direct Unsubsidized Loan, Direct Subsidized Loan, and the Parent PLUS Loan.

Direct Unsubsidized Loans are available to both undergraduate and graduate students, regardless of the financial need. The student is required to pay the interest on the loan when it comes time to make payments.

Direct Subsidized Loans are offered to undergraduate students who have sufficiently-demonstrated financial need. The federal government pays the interest on loans of this type while the student is enrolled, as well as during a grace period, and during deferment any periods.

Parent PLUS Loans are for parents of dependent undergraduate students. These loans have a much higher interest rate than subsidized or unsubsidized direct loans.

Private educational loans are available through private lenders such as credit unions and banks or individual investors. These loans typically have variable interest rates, which means the interest rate will likely change over time. Private loans also tend to have less flexible repayment options than federally-backed loans, and these loans do not offer forgiveness or discharge options.

Loan Terms

When taking out a student loan, it is important to understand the terms associated with borrowing and repaying the loan. Here are some key terms:

• Interest rate: This is the percentage of the loan amount that is charged by the bank or creditor for borrowing the money. Federal educational loans have fixed interest rates, while private loans often have variable interest rates.
• Principal: This is the amount of money originally borrowed and allotted as a lump sum or as installments.
• Loan term: This is the period of time over which the loan must be repaid.
• Grace period: This is the period of time after a student graduates (or leaves) school during which they are not required to make payments on their student loan. Federal educational loans have a six-month grace period, while private loans may have different grace periods or none at all.
• Repayment options: These are the different plans available to borrowers for repaying their loans. Federal loans have more flexible repayment options, such as income-driven repayment plans, than private ones.

Managing Student Loan Debt

Managing student loan debt can be overwhelming, but there are strategies that can help borrowers to stay on track with their loan repayment. One strategy is to make sure to understand all the terms of the loan before signing the loan agreement. This includes understanding the interest rate, loan term, and repayment options.

Another strategy is to make payments on time, as missing payments can lead to late fees and damage to a borrower's credit score. Additionally, borrowers can consider consolidating their federal loans. Consolidating multiple loans into one loan can make it easier to keep track of payments and may lower the overall interest rate.

Obtaining and repaying educational loans can be a complex process, but it is important for borrowers to understand the types of loans available, the terms associated with borrowing and repaying the loans, and strategies for managing educational loan debt. By being informed and proactive, borrowers can take steps to make sure that they are able to repay their loans in a timely and manageable way.

Share on Facebook

Tweet

Follow us

Save