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Student Loans

What are the different types of student loans and why would you choose one over another? Student loans are a way of obtaining the money necessary to pay for college or some other form of secondary education when you or your family could not otherwise afford it. Much like other loans, they are paid off over a period of time with a percent of interest added to the initial cost of the loan. There are 3 main types of student loans: private, refinance, and federal.

 

Private Loans:

Private loans are loans given out by banks or other private organizations to individuals. Usually the lender will want to see proof that you will be able to repay it, typically with a good credit score. You would normally want to get a private loan if you could not otherwise get a federal loan, as private loan interest rates tend to be higher.


Refinance Loans:

Refinance loans are, in simple terms, loans that pay off other loans. After you graduate from your secondary education, if you have shown responsible payment history, you might want to refinance your student loans. Refinanced loans typically carry a lower interest rate than federal or private loans, and refinancing a loan could change the loan payment plan to something that suits you better.


Federal Loans:

Federal loans are, in short, loans given out by the government. Interest rates for federal loans are determined by congress each year, and are typically lower than most other options. These loans come with useful features such as the ability to tie income to loan repayments and the oppertunity to get loans forgiven if you were to work in a public service field. Most federal loans do not require good credit, and are easily accessible by almost everyone with a high school diploma, making them the best option for most people.

 

Key Concepts Recap:

  • Loan

The term loan refers to a type of credit vehicle in which a sum of money is lent to another party in exchange for future repayment of the value or principal amount.

  • Interest

Interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at a particular rate.

 

Sources:

https://www.nerdwallet.com/article/loans/student-loans/understanding-student-loans#:~:text=There%20are%20three%20types%20of,private%20loans%20and%20refinance%20loans.




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