Sunday, May 8, 2011

The Basics of Student Loans By Jan Severenson

What are Student Loans?

Student loans are made to students attending college or other higher education institutions to help them pay the fees of tuition, materials, and cost of living. They are different from other types of lending in that you need to be attending or planning to enroll in a college to be able to be eligible for one. Repayment terms and interest rates are also typically different from conventional loans. All payments on the loan, including interest, are deferred until the student has left college. Usually repayment begins 6 months to 1 year after a student has left college, whether the student has graduated or not. Rates on student loans are also typically lower than those on conventional arrangements by at least 2 percentage points.

Am I eligible for a Loan?

The vast majority of college students in the United States should qualify for some sort of education financing. The amount they are able to borrow varies dependant on their earnings, their parents' income along with other financial factors. All of these considerations will probably be weighed by the financing company to ascertain how much the student may borrow.

Which Organizations Offer Student Loans?

Until recently, student loans came from two potential sources: the federal government, or financial institutions. Following the introduction of the Health Education Reconciliation Act of 2010, the Federal Direct Loan Program is the only government-backed education lending program in the U.S.. Within this program, the borrower and / or the student's parents borrow right from the government through the Department of Education. The Department of Education may use a private organization as the loan servicer. The servicer is the single contact the borrower will have for everything associated to payment, even in cases where the borrower has acquired Direct Loans at several educational facilities. Private student loans are made by banks and also other private finance companies. They are always more expensive than government funded borrowing, in regards to interest rate and fees. Students should certainly make certain that they have already reached their limit of government funded loans before applying for private student loans.

Private loans tend to be quoted at some foundation interest rate, such as Prime or perhaps LIBOR, as well as some further percentage. Some student lending web-sites advise looking for a loan cited at LIBOR plus, since the difference between the Prime Lending Rate and LIBOR continues to increase over time. Over the long run a loan determined by LIBOR will likely be less expensive when compared to an equivalent loan based on the Prime Lending Rate. One more issue to understand when examining private student loans is the fees billed for the loan - high fees will drastically add to the cost of the financing. A loan which has a relatively low rate but high service fees might eventually cost more than a loan having a rather higher rate but no fees.

Jan Svensen is a practicing engineer in Portland, Maine.

Jan Svensen, a practicing engineer, has been a technology and personal finance buff for decades. He has published articles in numerous technology, gadget, and finance blogs to help share his passion for those topics. He lives in Portlant, Maine, with his wife, three kids, two dogs, and a tortoise.

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