Are Student loans worth it? Well, let’s give a little bit of background to this question.
While some students are lucky or privileged to have a person or persons who fund their education or can fund it themselves, other students are not lucky. To cushion the effect of the high cost of tuition and other necessary educational fees on the students who can’t afford it, well-meaning individuals, organizations, institutions, government, Non-Governmental Organizations, and even religious bodies offer a series of aids in the form of scholarships, grants, aids, bursaries, rewards, and many more to students who have demonstrated financial incapacitation.
It’s a no-brainer that not all financially incapacitated students will be awarded a scholarship or any other form of aid as there’s a limit to what the concerned individuals or organizations, as the case may be, can do.
However, as a way of ensuring that no student is ever deprived of the chance of getting a degree on account of funds, several student loans have been put in place to further render financial assistance to students who need it.
What this article aims to do is to arm you with ample information about student loans. Do well to stay with us.
What Are Student Loans?
Just like other loans, a student loan is a financial assistance given to students to help them pay for higher education programs and other associated fees such as textbooks, supplies, feeding, accommodation, transportation, and general living expenses. The major distinguishing factor between other loans and student loans is that the interest rate for student loans is substantially lower than other loans. Also, repayment for student loans is deferred until such student graduates and finds gainful employment.
Types of Student Loans
There are three types of student loans, and they include:
- Federal Student Loans
- Private Student Loans
- Refinance Private Student Loans
1. Federal Student Loans
Federal loans are issued or provided by the government. Federal loans are the most flexible of all student loans type. To choose the most suitable federal loan for you, you will have to factor in your financial need, your intended institution of higher learning, year in school, and credit history. While the loan is provided by the government, it is within the jurisdiction of Congress to set the interest rate annually.
One of the major reasons why federal loans are considered the best student loan type is because it doesn’t require a student to have a co-signer. In addition to the aforementioned, students don’t need to have good credit to be eligible. As a matter of fact, every student with a high school diploma is automatically eligible for federal loans. Furthermore, federal loans offer protection that allows repayment plans to be tied to students’ salaries after graduation. In some cases, students who end up working in public service fields after graduation may have their loans waived. While federal loans cannot be refinanced, they can be consolidated. By consolidation, a student or graduate, as the case may be, is allowed the liberty of combining multiple loans into a single repayment plan.
Although there are various types of federal loans, the two major types are Subsidized Direct Loans and Unsubsidized Direct Loans. The interest on subsidized loans is paid by the government, leaving the student or students with just the capital to pay back. However, students who take unsubsidized loans are responsible for the repayment of both capital and interest at all times.
2. Private Student Loans
Private loans are provided by banks and other financial institutions. In contrast to federal loaners, private owners require students to tender proof that they can repay their loans, and this proof, in most cases, is usually a good credit score. In addition to that, a student is required to have a co-signer, so should in case they default, that person becomes responsible for the loan.
It is pertinent to note that asides from interest, some private loaners also charge additional fees, and loaners who do not charge fees roll it over into their interest rate. These added fees significantly increase the cost of the actual loan.
Financial experts advise that students should only opt for private education loans after they must have maxed-out federal loans.
3. Refinance Private Student Loans
Private student loans can be both refinanced and consolidated. To refinance means to get a new and lower interest rate on an already existing loan. To be eligible for a refinance, you must show your creditworthiness by demonstrating a willingness to repay your loan. Consequent to your demonstrated willingness, a private lender repays your loan and issues a new one. With a lower interest rate, you get the chance to save money when you refinance student loans. Consolidating your loan, on the other hand, means combining multiple loans into a single repayment plan.
Loan Repayment: Can You Pay Student Loans With A Credit Card?
While paying federal loans with a credit card is not even an option, some private loaners may allow the use of credit cards in debt repayment. While paying a student loan with a credit card may seem a bright idea, it is necessary to get all your facts right before deciding on the best way to tackle your loan payment.
Repaying student loans with credit cards has both merits and demerits.
On the merit side, when you pay your loans with a credit card, you get to enjoy more repayment flexibility. Since you are required to repay your loan on a regular schedule upon the expiration of your grace period, transferring your loan to a credit card allows you may be offered a minimum balance based on your current needs. In addition to that, your interest payment may be reduced if you pay with a credit card.
On the downside, however, if you encounter any trouble paying your loan, using a credit card deprives you of the opportunity to negotiate a temporarily reduced interest rate with your loan providers for the duration of the difficulty. Also, credit cards have higher interest rates. Thus, when you move your loan to a credit card, the amount involved will be charged with a higher APR of a credit card against the lower interest rate of a typical student loan.
Are Student Loans Worth It?
Back to this very much important question once more, Are Student Loans Worth It? With all that has been said about private loans in contrast to federal loans, it may seem as though private loans are complete bad news, but that’s not the case. Private loans can come in very handy, especially when your financial aid is not sufficient to cover all your expenses.
We do hope you found this article with the title ‘ Are Student Loans Worth It?’ to be useful and informative. We, however, advise that you conduct your due diligence before taking on any loan as the right loan for you will ensure that you don’t take more loans than you need.
All the Best!