Selling your Soul for a College Degree: Student Loans
Written by: Drew Fox
Most of us are seniors and all of us are close to finishing our time in high school and graduating. Now whether you plan to go to college or not, it is important to understand student loans to get a grasp at what loans really are. College Tuition averages out to around $25,000 a year nationwide, which is around 100,000 dollars for a 4 year degree. Most people in the US can’t afford that amount out of pocket, so they go to another source, in order to pay it off.
Loans are a sum of money borrowed that is expected to be paid back with interest. Similar to a checking account at a bank, loans also have an interest rate, but instead of benefitting you, they benefit the loaner. Interest rates are either variable (meaning they can change based on circumstance) or fixed (never changing).
Student Loans can be categorized as public or private, public being the loans from the government, and private being the loans from an outside source, both have benefits but you might have to use both in order to be able to pay the tuition fully. Public loans, also known as federal student loans have an interest rate set by Congress which range from about 4-7 percent depending on your circumstances. Within the public loans there are another two types, subsidized and unsubsidized. Subsidized loans do not carry interest while the borrower is in school. These loans are very nice, as they decrease the total amount needing to pay back in comparison to others, but they are only eligible to ceratin undergraduate students and the amount is based on the individuals financial need. If you want to know what you qualify for you have to fill out the Free Application for Federal Student Aid or FAFSA if you’ve heard about it before.
The other type of student loans are private loans, which will require you to fill out an application with a private owner. This includes a bank, credit union or online-only entity if you meet their borrowing requirements. Nonprofit organizations, state agencies and colleges can also make private student loans. The private lender chooses the interest rate which can vary significantly around 4-14 percent for fixed and 2-13 percent for variable. The amount chosen depends on a number of factors which mostly add up to the main factor of how likely you are to pay it back.
Public loans tend to be better off in flexibility and interest rates but you might need a private loan if you don’t get enough money from the public loan.
The flexibility given by the public loans come into play when your paying it back, through the different methods or repayment, which only some private lenders give. These include graduated repayment and extended repayment, Graduated payment creates a smaller initial payment and gradually get bigger over the payment timeline. Extended payment extends the usual 10 year pay period and then has a rent like system where the user pays a specific amount each month. These different payment systems can be good for those who need more time to get the money but they can increase your total because the interest stacks up.
In conclusion, there is a lot of variety in student loans, and many of the options differ among people based on their eligibility for loans or personal preference. Its important for us to understand these loans before we take them, so that we don’t end up drowning in debt. Paying them off efficiently will help us out financially in the moment, as well as in the future when we need to take out another loan for a car, business, or house.
Works Cited
“Best Personal Loan Rates for November 2020.” Bankrate, www.bankrate.com/loans/personal-loans/rates/.
Llc, Earnest Operations. “How Do Loans Work?: Earnest.” Earnest Blog - Money Advice for Young Professionals, EARNEST OPERATIONS LLC, 1 Sept. 2020, www.earnest.com/blog/how-do-loans-work/.
McGurran, Brianna. “How To Get A Private Student Loan.” Forbes, Forbes Magazine, 14 Sept. 2020, www.forbes.com/advisor/student-loans/how-to-get-a-private-student-loan/.
Stobierski, Tim. “Everything You Need to Know About Paying Down Student Loans.” Student Loans 101: Everything You Need to Know Before You Borrow | Northwestern Mutual, Northwestern Mutual, 8 Sept. 2017, www.northwesternmutual.com/life-and-money/student-loans-101-everything-you-need-to-know-before-you-borrow/.
I was not aware that there were different types of student loans, you'd think we'd already know about that given that most of us are seniors planning to go to college. It's interesting to see that there are public and private student loans and each has their own differences. Not only that but it's likely that your will use both types of student loans to pay for college.
ReplyDeleteWith the talks about canceling student loan debt, I find the argument for cancellation interesting. The argument for canceling student loan debt states that the money people use to pay back their loans going to a single bank or other institution could instead be used to buy other products or services from a variety of companies, thereby boosting the economy.
ReplyDeleteIt is very interesting to see that there is some choice when it comes to choosing a student loan, and since we were talking about interest rates within financial institutions, is the interest rate usually a lot higher in a bank when compared to a credit union?
ReplyDeleteIt's good to know that there are a lot of different options and they seem to be rather flexible. Loans are something I am personally worried about for the future, I'm not sure if it should be something to worry about, but this article is at least somewhat comforting in that there options out there to kind of fit the needs of those who use them.
ReplyDelete