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Acquiring Student Loans

Due to the recent outcry against skyrocketing student loan debts, people have become increasingly wary about taking out loans to get through college. While it is advisable to be cautious in such matters, one shouldn't really discard the option altogether. A student loan is a specialized form of financial aid intended to help students who can't afford college education otherwise. Contrary to popular belief, student loans don't necessarily come with exorbitant interest rates and many graduates are able to repay them slowly over time with no problems.  

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Are there different types of students loans?

Federal vs Private Loans

For the purposes of streamlining, student loans can be categorized as federal loans and private loans. Federal loans are provided by the US Department of Education while private loans are provided by banks or other financial institutions. Typically, federal loans come with a bunch of financial incentives even as the amount of loan tends to be lower than private loans. For starters, the interest rate on federal loans is lower, you don't have to repay while you are still in college, you don't need a credit check or a cosigner to acquire a federal loan, and the interest might be tax deductible. In most cases, you can't enjoy these privileges if you take a private loan. On the bright side, you can acquire a larger amount of money that might cover your expenses more completely with a private loan.  

Subsidized vs Unsubsidized Loans

Even within the category of federal loans, there are further distinctions. For instance, the William D. Ford loans are provided directly by the US Department of Education while Perkins Loans are provided by the college. Additionally, loans can also be categorized as subsidized or unsubsidized loans. Direct Subsidized Loans are available exclusively for undergraduate students with financial need. Under these loans, the interest rate is paid by the federal government while you are still in college and for a grace period after you graduate. On the other hand, Direct Unsubsidized Loans can be acquired by both undergraduate and graduate students without demonstrating financial need. However, there are no interest concessions on unsubsidized loans and you will have to pay the interest throughout the loan period. Besides these categories, there are other forms of federal loans like PLUS loans and Direct Consolidation Loans. The former kind are meant for graduate or professional degree students who need additional financial aid to cover their education expenses. These loans are also available for parents of undergraduate students. Under Consolidation Loans, you can consolidate your multiple student loans into a single loan. This can be a risky move and you must consider all factors before making a final decision; however, in some cases, consolidating your various student loans can reduce the overall interest rate for your loans so you end up paying less over time.  

Make an informed decision while taking out student loans

While acquiring student loans, you must understand that they are meant to be a form of self-help aid as opposed to gift aid, i.e. you will have to pay them back once you graduate. Based on the Estimated Family Contribution (EFC) and the cost of attending a college, you can calculate the deficit, which will most likely be the amount of money you will need to borrow in student loans. Make a mental note of the rate of interest charged and the monthly payments you will need to make once you graduate. Now, do some research about the average salary of someone just entering your particular field. Make sure that the monthly payments form a small percentage of your salary as you will have to support yourself during this time. If the payments take up a large portion of your salary, you will find it difficult to make the payments. Do the math before you make any hasty decisions. If you think that the interest is too high for you, borrow a smaller amount and look for third-party organizations which provide grants and scholarships. Even if you can finance a part of your education through these, you can decrease the loan amount and subsequently, the monthly payments. Quite often, you might have multiple loans of different types at once. For instance, you might have a combination of federal, private, subsidized and unsubsidized loans to make up for your financial deficit. Each of these loans have different terms and conditions and you should acquaint yourself with their unique requirements. Finally, retain copies of all important loan documents and update your FAFSA every year, especially in the light of any financial changes in your family. When it comes to student loans, you must try your best to stay ahead of the game. Gather adequate information, be on the lookout for any updates, make mental notes of important figures, and things will eventually fall into place.