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Student Loans - Part I: Understanding Your Options

| August 14, 2019
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The student loan crisis that is taking place in our country is certainly something too big to ignore. How big? The amount of student loan debt is the highest that it’s ever been at $1.5 trillion in the U.S. alone, and there are close to 45 million U.S. borrowers with student loan debt. While the total amount of student loan debt continues to rise, so does the cost of a college education. While many of us would like to avoid student loans completely, most have or will end up having to take a student loan some point. These articles on student loans should serve as an educational tool for you, so that if you have to deal with borrowing and repaying your student loans, you’ll have a strong understanding of how student loans work, and therefore, can make a sound and informed decision.  

It may seem ironic that I previously referenced student loan debt as “good debt”, but it provides you with an opportunity to invest in yourself and your future. Paying for college is expensive, and there are multiple ways that people can pay for college; some of which include family support, education savings plans, private loans, grants, scholarships, financial aid, etc. Yet, student loans are the most common, and should you have to take student loans, the Federal Government does provide you with a few options when choosing which loans are right for you. 

There are four basic types of student loan options, which are provided by the Federal Government:

  1. Direct Subsidized Loans – These loans are available to undergraduate students with financial need, and the school determines the amount that you can borrow. Interest payments on these loans require payment beginning 6 months after graduation (or after you leave school), but while you’re in school, the U.S. Department of Education pays the interest on these loans.
  2. Direct Unsubsidized Loans – Loans are available to both undergraduate and graduate students, with no requirement to demonstrate financial need. These loans allow you to borrow money based on your cost of attendance, along with any other financial aid that you receive. You are responsible for paying interest on these loans at all times. Should you decide not to pay the interest during school and in grace period, the interest will accrue and capitalize.
  3. Direct PLUS Loans- The lender of these loans is the U.S. Department of Education and can be made available to graduate/professional students (Grad PLUS loan) or to parents of a dependent undergraduate student (Parent PLUS loan). A credit check will be conducted, and upon meeting eligibility for the loan, you can receive an amount that is equal to the difference between the cost of attendance and any other financial aid that you receive.
  4. Direct Consolidation Loans – The combination of all your federal student loans into one loan with an individual loan provider. There are private loan providers that provide consolidated loan options, as well.

Now that you understand the federal loan options that are available, one piece of advice to keep in mind is that you should not take more than you need. The best repayment plan option will vary for everyone, as everyone’s needs are different; some may prefer less cash flow now with a higher monthly payment and a shorter payback period, while others may prefer more cash flow now with lower monthly payments and longer payback period. In the upcoming blogs, we will start to dive into some other details, particularly focusing on repayment options for your loans to help you figure out which option best fits your needs.

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