What are Student Loans?
A student loan, also called an education loan, helps students pay for college tuition, books, and living expenses. Student loans carry much lower interest rates and repayment starts about a year after the student graduates.
Key Things You Need to Know About Student Loans:
1) Student loans come in three major formats: Student loans (Stafford and Perkins loans), parent loans (PLUS loans) and private student loans, also called alternative student loans. A distinct type of education loan called a consolidation loan is also available. With this type of loan, the borrower can consolidate all loans into a single loan, making it easier to repay.
2) Federal education loans are available as direct loans or federally guaranteed student loan programs. Federally guaranteed loans limit the interest rate and the fee the lender can charge. Deduction is allowed on federal income tax returns in respect to interest on student loans taken under the federal program.
3) Private Student Loans: Private loans come in handy when federal loans, grants, and other forms of financial assistance do not adequately cover the full cost of the student’s education. Banks and financial institutions, among others, provide private student loans. They are credit-based and must be certified by the student's school.
4) Schools will ask the student to complete the Free Application for Federal Student Aid (FAFSA) to determine the student’s loan eligibility.
5) Students do not make repayments toward the loan account while they are in school. However, interest is calculated periodically and added to the principal when the repayment phase begins. The loan typically covers tuition fees, living expenses, cost of books, and a computer and the loan amount is sent directly to the school.
6) Student loan consolidation: Student loan consolidation means that the student can take out a single loan that he or she can use to repay all of their existing loans. Payments are generally lower on the new loan account.
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