Student Loans

Student loans get a pretty bad rap. It’s true, more and more young people are saddled with debt upon exiting the university and/or higher education programs. While we cannot get into the policy issues behind student debt, it is a fact in the U.S. that studying without some sort of financing in 2019 is virtually impossible. Scholarships have become much more competitive so taking out a loan (unless your parents are footing the bill) is a reality.

Because we know many young folks are saddled with loans, it is safe to assume there are a plethora of loans to choose from. A loan that offers a low interest rate, borrower protections and multiple repayment options is a good loan to choose. The most common provider of those types of loans is the federal government. Their loans have fixed interest rates and tie in what’s known as income-driven repayment (payments based on your current income). There are currently 3 types of federal direct loans. The first are direct subsidized loans, aimed at students who have demonstratable financial needs. No interest is charged while in school nor during deferment periods. Payments then begin once the student is at least 6 months out of school.

The second are direct unsubsidized loans. These are not based on financial need and interest is always added to the principal (even during deferment periods). However, with a direct unsubsidized loan you can defer payments for 6 months or until you leave school. The third type of federal loan is the Direct PLUS Loan which are credit-based, unsubsidized loans for graduate students or professional students. These feature higher interest rates and you may borrow up to the total cost of attendance.  

On the private loan side there are many more available. Credit unions, banks, online platforms, the list is literally endless. Fees and interest rates will vary dramatically, as will length of payment with private loans. It is also useful to note that a co-signer will be required because most students taking out private loans lack collateral which make them extremely risky for the bank to underwrite without a co-signer in place. Another item to look for is a co-signer release offer which gets the co-signer off the hook after a certain number of payments.

Lastly, with any type of loan, knowing how much to borrow is just as important as choosing the loan. This is not as black and white as it might appear. You might already know you need $40,000 to study for one year, but what if working on a flexible schedule could lower the amount you borrow by $10,000. This might be worth it over the long-term so researching into what those options are is highly recommended.

The interest alone with any type of loan can be the heaviest burden to carry. Borrowing as little as possible is always recommended.