Student Loans

Understanding Student Loans

Whether you're embarking on college now or you've already graduated, student loans are very likely weighing heavily on your mind... and if they aren't, they probably should be. These days people are graduating with bigger college loans then ever before. In fact, there's more student loan debt in the United States than there is credit card debt. So whether you're searching for college financing, or you're struggling to manage existing student loans, it pays to stay informed on the subject.

What Kinds of Student Loans Are There?

Generally speaking there are two types of student loans: federal student loans and private student loans. Federal student loans are provided by the government and they come with a relatively low, fixed interest rate, along with a variety of government mandated protections, such as deferment options (deferment a period of time where you don't have to make payments and you won't accrue interest because of economic hardship).

Private student loans, on the other hand, are administered by banks and other financial institutions, and the interest rates for these loans tend to be higher and they can be raised over time. Private student loans may be eligible for forbearance programs - which means you may be able to suspend payments due to economic hardship, but during those periods your loan will continue to accrue interest. Extended periods of forbearance can cause loan balances to jump considerably and it's important to remember that not all private lenders offer forbearance programs.

It's important to note that neither public nor private student loans can be discharged in bankruptcy. That means that no matter what, you're stuck with these loans, and if you fail to pay them back, your wages can be garnished.

What Kinds of Loans Can I Get?

If you have bad credit, student loans can be a source of real concern. When it comes to federal student loans, bad credit isn't an issue. Federal student loans are available to just about everyone, regardless of your credit, your course of study, or even your potential ability to pay them back.

Private student loans are another story entirely. Private student loans typically do require a credit check, and those with bad or no credit, will likely have to get someone to cosign the loan. That person will be just as responsible for paying back the loan as the student. Many students find that the Federal loan options simply won't cover the cost of the education and as a result they must look for scholarships or private student loans to make up the difference. If you do opt for a private loan, be sure to do your homework and scrutinize the terms of the loan and the interest rate.