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Student Loans

Education is an investment in the future that lasts a lifetime. No one would ever deny its value and necessity. As it is also very expensive, few students or their parents can afford to pay for their children's education without appealing to some type of financing. One of the most frequently used ways to fund education after high school is taking out a Student Loan.

Student Loans are offered to students to assist in paying for professional education costs, including tuition, books, housing fees and other expenses associated with going to college or university. Student Loans usually carry a lower interest rate and can be supplemented by student grants which do not have to be repaid.

Education Loans are divided into Student Loans, Parent Loans and Private Student Loans categories. There are also Consolidation Loans and Peer-to-peer Education Loans options.

Student Loans are known in several lending types, the major being federal loans and private loans. The federal student loans are regulated by the government, and can be provided by the college's financial aid program at a small interest rate. The student needs to start repaying the finances owed after he/she has finished school or has fallen to half-time attendance. Federal Loans are often restricted to paying for tuition fees.

The Federal loan programs offer not only fairly low interest rates, but also more flexible repayment plans. The maximum interest rates and fees that lenders may charge for this type of loans are set by the Federal law. In order to attract borrowers, many lenders offer various student loan discounts and charge lower fees.

The federal student loan programs provide students with loans having below-market interest rates and offer flexible repayment options. Federal loans are available for two- and four-year undergraduate study, as well as graduate study.

There is a six month grace period between the time when the student graduates and the time when he/she has to start returning money to the lender. However, interest starts growing as soon as you finish college. Remember that all amounts owed will tell on the student's credit rating.

There are three main types of federal loans, which help promote access to higher education at better terms than the loans available in the private market: Federal Stafford Loans, Federal Perkins Loans and Federal PLUS Loans.

Federal Stafford Loans are regulated by the federal government and can be obtained directly from the government or from a bank or credit union. You have a choice between Subsidized Federal Stafford Loan, Unsubsidized Stafford Loan and Additional Unsubsidized Stafford Loan.

"Subsidized" means that the government takes the responsibility to pay the interest on the loan while a student is in college or when the student requests a deferment or a grace period. Subsidized Stafford Loans are long-term and need-based loans, with lower interest rates for undergraduate borrowers. To qualify for this type of Student Loan one should meet financial eligibility requirements.

Unsubsidized Stafford Loan is long-term, non-need-based loan, with a low-interest rate, best fit for students who fail to qualify for other types of financial aid. "Unsubsidized" implies that the interest on the loan lies in the responsibility of the borrower. Interest will accrue from the moment the loan is disbursed to the school. There are also Additional Unsubsidized Stafford Loans that are reserved for borrowers classified as independent students.

The major difference between the subsidized and unsubsidized loans is the fact that the government will pay the interest on your subsidized loan while you are in school, grace or deferment. The interest on an unsubsidized loan is fully your responsibility at all times.

Federal Perkins Loans have very low interest rates and aimed at students with extreme financial need. The funds available for these loans are quite limited; consequently the amount of the loan will be relatively low. These loans are reported to a credit bureau, and in case you default on your loan, your credit reliability could be damaged.

The federal government provides funding for Perkins loans directly to colleges and universities, which participate in determining which students should receive a Perkins loan and consider the size of the loan. Interest rates are fixed at 5 percent and interest doesn't accrue until 9 months after a student graduates or falls below half-time enrollment. Repayment process can last no longer than 10 years. For undergraduates annual borrowing limits are set at $4,000 and for graduate students the limits are $6,000.

Parents are responsible for their children's education and usually bear the educating costs. Federal PLUS (a Parent Loan to Undergraduate Students) Loans are low interest student loans available to parents whose kids are attending college as full or half-time undergraduate, dependent students. The amount of such loans is determined by the cost of the college or university where the student studies. These loans are available regardless of income or assets, you don't need to prove financial need and no collateral is required. Federal PLUS Loans are provided based on credit history and the actual cost of students' attendance in the college level.

Repayment normally begins within 60-90 days after the student graduates or after full disbursement of the loan. PLUS loans normally carry a fixed 8.5 percent interest rate (7.9 percent for PLUS loans through the Direct Loan program). These loans generally must be paid back over 10 years.

There are also Grad PLUS loans designed for graduate students who may borrow PLUS loans for themselves under the same terms that they are provided to parents of dependent undergraduates. In addition, there are Education Savings Plans available for students and their parents. Saving towards the children's education and planning your budget accordingly will help you provide a good education for your children.

In case you don't qualify for federal loans, consider resorting to private lenders and non federal student loans. Many loan companies and banks offer Private Student Loans at relatively low interest rates. This type of loans is not regulated by the government, and may be granted either to students or their parents through a variety of institutions. Private loans are basically meant for those who go to high cost colleges and require more than standard federal cash amounts. The issuing lender sets the interest rates on private student loans individually and therefore, the interest rates can vary considerably.

Private Student Loans are generally used to pay expenses which federal loans cannot pay due to borrowing limits, for example, room and board, testing fees, transportation and books etc. If needed, students can use both private and federal student loans at the same time.

The two major interest rate types of Student Loans are subsidized and unsubsidized. Subsidized loans (such as the subsidized Stafford Loan and Perkins loans) imply that the interest is paid by someone besides the borrower while the borrower is in college, while unsubsidized loans (such as the unsubsidized Stafford Loan, Parent PLUS Loan, private student loans, etc) imply that interest accrues from the day the loan starts.

With subsidized loan, the loan amount you can get depends on your financial condition. Subsidized loans are backed up by the federal government and educational institutions. With unsubsidized loans, you can get a much bigger loan amount and get an approval quite easily in case your credit score is high. However, the interest rates in unsubsidized loans are usually rather high.

In order to get a Student Loan, one should first fill out the Free Application for Federal Student Aid (FAFSA). Choose which type of Student Loan you want to apply for. Once your FAFSA is completed, you will need to visit your school's student aid office and find out what kind of aid you may count on.

First-time applicants will need to provide the following documents: birth certificate or passport, pre-printed deposit slip from your bank, pre-printed letter or notice from Inland Revenue, marriage certificate and/or deed poll papers.

There is a Student Loan Consolidation program sanctioned by the US government to assist those with multiple student loans in paying back their loans. Consolidation is generally putting multiple loans under one large loan. By doing this you reduce your monthly debt.

You don't have to start paying back your Student Loans until the time you have graduated from college. This fact gives students and their families an opportunity to focus more on the student's college career and provides the student with a grace period to find employment.

Like any loan, Student Loans consist of two components: principal and interest. Student loans also have origination fees, which can range from 1% to 5% of the loan amount. This is a processing fee that lenders charge in order to cover the cost of originating a loan. Origination fees are normally added to the loan principle when the loan is completed.

Different types of loans have different interest rates. For federal loans interest rates are fixed, while for private loans the interest rate depends on a number of criteria. There are usually three Student Loan repayment plan options: traditional repayment, interest-only repayment, and deferred repayment.

Traditional repayment has the lowest interest rate. In a traditional repayment plan, you have to start making payments on the principal and the interest one month after you receive the loan. With an interest-only repayment option, you make payments only on the interest accruing on the loan while in college. And in case of a deferred repayment plan, you don't make any payments while in school, but defer them until after graduation. However, this option often has higher rates and fees and the unpaid interest is added to the principal, increasing monthly payments.

Take time to do your own research on how Student Loans work to be prepared to make the right decision. Student Loans offer a great opportunity to get an attractive interest rate and borrow enough money to get the right start in life.