Student Loans 101

How to Swim in Debt Infested Waters

Kamille Ritchie, Cactus Editor

There comes a time in every college student’s life when they are in need of a financial ally. A Pell grant can be beneficial, but sometimes it’s not enough. Students might have to turn to a fre-nemy: Student Loans. While a loan is helpful, the interest rates are usually killer. As they say, noth-ing in life is free, and everything comes with a price. But that does not always have to be the case. Educating yourself on these matters can not only help save your money, but your sanity as well.

There are two types of student loans: federal and private. Federal loans are dispersed by the government. Almost every student with a high school diploma is eligible to receive them. Private loans are offered by private banks and financial institutions. A student’s eligibility and interest rate is based their credit score. Federal loans branch out into three different types: direct subsi-dized/direct unsubsidized, direct PLUS, and federal Perkins loans:

•A direct subsidized loan is available to undergraduate students who demonstrate financial need. The school determines how much you can borrow and nothing more. The govern-ment pays the interest while you’re still in school, six months after graduation, and while your payments are postponed.

•Direct unsubsidized loans are available to undergraduate and graduate students; you do not need to show financial need. The amount borrowed is usually determined by your cost of attendance and other financial aid you have received. During all periods, you are responsi-ble to pay interest.

• A direct PLUS loan is reserved for graduate students and parents of dependent undergrad-uate students. In order to borrow, the recipient cannot have poor credit history. The loan amount is determined by the school and based on the estimated cost of attendance.

•Federal Perkins loans are available to students who demonstrate dire financial need. This particular loan has a consistent interest rate of 5% and is given by the school. The amount you can borrow depends on your financial need and how much funding the school has available to spare. Keep in mind, not all schools participate in this loan.

When it comes to student loans, you are encouraged to start with federal loans as they are more generous when it comes to repayment options, and generally have lower interest rates. Consider saving private loans as a last resort, as these loans are less lenient on repayment options and have higher interest rates. When it comes time to repay loans, a student will not be hounded until six months after graduation, unless they leave school, or change their enrollment status to part time. Many times with private loans, a student will be required to make payments while still in school.

Tying your monthly payments to your income is one of several repayment plans federal loans have to offer. If life happens and you’re unable to consistently make payments, you may be able to lower or postpone them temporarily. Some of your loans can potentially be forgiven if you work in public service. In regards to postponing, reducing, or forgiving payments, private loans rarely offer options such as these.

When it comes to interest rates, federal loans are fixed, meaning they stay the same throughout the time you’re repaying. Congress sets the federal loan interest and it changes from year to year. Of course, the amount depends on the year it was dispersed and the repayment plan you choose. For the most part, interest rates on federal loans are lower and may be tax deductible. The interest rates of private loans are variable so they shift depending on economic conditions and the credit score of the borrower or co-signer (Parent or guardian). Unlike federal loans, private loans are unsubsidized. With the student responsible for paying, it is likely your balance owed will be bigger as a result of capitalization.

Here are several things to keep in mind when considering taking out a student loan. You do not need to borrow all the money you qualify for. Yes, while having extra cash is nice, you’ll still have to pay off all that money and more. If you do take the plunge and take the loan, remember you have a window of 120 days to return it if you change your mind. Calculating an estimate is essen-tial to avoid borrowing too much money. To find out how to do that, check out this link: Calculating Student Loan Interest (YouTuber Vin Teaches Math demonstrate how to do this in an easy to comprehend video). To find more information on Student Loans, check out Federal Student Aid and Nerdwallet.