So, you have decided to hit the books for another four years fresh off graduating high school. Good for you! College can be a rewarding and transformative experience.
It is also very expensive. Rewarding as it can be personally and intellectually, it can be a drain on anyone’s finances. For the most part, many students lack the necessary funds to go to university.
Does this mean you should ditch a college education? No! However, you do need to be aware that your finances should be a major consideration. Unless you have deep pockets, you can turn to one option—taking out a student loan.
In this article, you will learn how student loans work. Stick around for this crash course on student loans.
What Is a Student Loan?
A student loan is money that you borrow to pay for your college education. The amount of money you borrow covers your tuition fees for the duration of your education.
Although tuition is the main expense covered, a student loan can also assist with other payments. Some student loans can also cover non-tuition costs. For instance, many private student loans can cover books and some living costs.
Do You Need to Pay a Student Loan While in College or University?
The answer is no. And that’s the beauty of it! Indeed, you may pay your student loan in advance if you stumble across a lot of money. However, while you are a college or university student, there’s no need to make payments right away.
Rather, your student loan due is in a state of deferment while you are in university. When does this deferment end? It ends after you graduate.
What Is Loan Deferment?
A loan deferment refers to a period of time a lender does not collect payment. During a deferment, the person who took out a loan does not need to pay the principal amount or interest.
The borrower pays the loan with interest by an agreed-upon date. Think of it as an IOU note with a specified date.
In the case of a student loan, the period of deferment usually ends after graduation. Often, you may be given up to six months after graduation to pay the loan in full before required payments begin.
Who Can You Borrow Money From?
You can take out a student loan from one of two parties—the government or a private company.
Student loans from the federal government come from the Federal Student Aid program. By and large, it provides almost all federal funding for students who take out loans. Some of the perks of federally-funded student loans include:
- The absence of certain requirements (e.g., tax history, credit checks)
- A variety of payment methods after graduation
In light of the COVID-19 pandemic, those with federal student loans can also be eligible for financial relief. This financial relief comes in the form of forbearance. Also, there is Public Student Loan Forgiveness for those who plan to work in the public sector post-graduation.
You can also take out a student loan from a private company or bank. Often, private student loans have added coverage on top of tuition fees. They also generally have higher interest rates than federal loans.
Federal? Private? Which Is Better?
Both are sensible choices for your student loans. It comes down to your circumstances.
From our perspective though, you may want to kick your loan application off with a federal loan.
Why? Here are some of the reasons:
- You do not need to have a credit or tax history (which is a must for private loans).
- Your loans are supported by Chipper for finding new repayment plans or potential forgiveness program options.
- You can apply for forbearance or forgiveness if you cannot pay for the loan after graduation.
- Recently, the HEROES Act has decreased the interest rates for federal student loans.
To apply for a federal loan, you need to fill out the Free Application for Federal Student Aid form.
In a Nutshell: Get a Degree Now and Pay Later
In principle, how a student loan works is pretty straightforward. You take one out from either the government or a private company. Whichever one you go with, you can count on the financing of your studies until you graduate.
The loan deferment period allows you to pay for the loan after you graduate. So, you will not need to pay for your tuition or books while in university or college. So, if you’re thinking of how to pay for college, consider getting a student loan!