Student Loans: The Basics

Let’s Get Right to the Point

If you’ve already got the money (or your parents are giving it to you) to pay your way through school that’s awesome, congratulations! If not, you’ll need to get that money from somewhere and the most likely way to do this is by taking out a loan. Before you start aimlessly wandering through the nightmare that can be student loans, here are the basic concepts you should know and understand before getting in over your head.

The first type of loan you can receive is a Federal student loan.  These are loans you get through the government and are guaranteed by the government. This money is generally disbursed directly to the school, and covers school-related expenses.  These aren’t just limited to tuition; they can cover room and board, fees, books, supplies, equipment, dependent childcare, transportation, and the rental or purchase of a personal computer.

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So let’s look a little deeper.  Federal student loans are either subsidized or unsubsidized. Subsidized student loans are only offered to students demonstrating financial need, and financial need can be determined differently from school to school. The government makes interest payments for the students with subsidized loans during the student’s term of schooling.

The other types are unsubsidized!  These are available for nearly all students regardless of need.  Sound pretty good BUT you need to know that these accrue interest during the time you are in school. This interest is added onto the loan and is payable after you graduate. If really want to be on top of your game, you can create a budget for making small payments on this interest while you are in school.  This is s smart idea, but isn’t required.

Download a student loan planner worksheet

Now this all sounds great UNTIL you graduate.  Both types of federal student loans carry a six-month grace period, which means you don’t have to start paying the loan back for six months following your graduation (provided you are maintaining at least a half-time student status during those six months).  So watch out!  If you decide to take some time off of college, watch out for that six-month mark.  I’ve seen it sneak up on my friends before!

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Your other option is to apply for private student loans. These are loans are often offered through your credit union and other financial institutions.  While they may not be as large they can make a huge difference!  They usually help make up the difference when a federal loan can’t cover all of what you need.  Federal loans to have maximums and as we all know that some schools are WAY more expensive than others!  Every bit counts!   

Private student loans can be paid directly to the school or the student.  This might sound more convenient, but can be dangerous when that money hits your savings account.  Be sure to buckle down and ONLY use them for school expenses! These loans usually have higher limits and more flexible repayment terms. However, they don’t carry the government guarantee!  You’ll want to watch out for higher interest rates and additional fees. Most of the time, these institutions will look at your credit score to determine eligibility so watch out! 

I could honestly go on for days talking about student loans, but then this would seem more like a textbook than a blog.  While I may not have covered everything, this information is should at least get you off on the right foot.  Student loans can be a real lifesaver, but if not dealt with or understood correctly, could cause some serious damage to your future!  Remember, knowledge is power!  Soak up as much information as is possible now to guard yourself from making bad financial decisions!

Special thank to the Living Young & Free Guide for the tips!  If you have any questions or feedback feel free to comment below!  The line is always open.

Until next time,

Austin