How do student loans work? That is a question that I wish more people would ask before actually taking them out. However, most people (much less an 18 year-old) understand some of the complexities that student loans have. In fact, most people don’t understand how any type of loan works. So let me explain how student loans work so that you can decide for yourself if they are right in your situation. Here we go.
(1) Who Can Get Student Loans
In short answer: pretty much any US citizen. I’m sure that there are differences in other countries (if there are student loans at all). You will have to fill out the FAFSA and show the federal government how much you (or your parents) are in financial need. The FAFSA is basically the application for student loan borrowing. But even if you are not in financial need, you can still get student loans. They may not be subsidized student loans though. Which means that the loans will accrue interest while you are in school.
There are some differences for student loans for graduate school or professional school. But by and large, student loans for community college, technical school, and undergraduate programs all work the same.
There are several different types of student loans out there. If you are going to use student loans to pay for higher education, make sure that you get the right one(s). If you are confused, here is an article to help you sort them out. And if you are still confused after that, don’t be afraid to contact your school and have them help you walk through your different options.
(2) How Student Loans Work While You Are In School
While you are in school and taking classes (even during winter and summer break) you will not have to pay on your student loans if you don’t want to. There are some private student loan exceptions, but they are very rare.
If you have unsubsidized student loans, however, they will accrue interest. I have known students who do their best to pay the interest off as it accrues while they are in school just so the loan doesn’t grow to a bigger amount. That, of course, is up to you though.
(3) How Student Loans Work After You Leave School
After you leave school (by either graduating or dropping out) you will have a grace period before you start paying back the loans. This is for federal student loans though. Most private student loans also have a grace period as well, but not all.
Typically the grace period before you have to start repaying student loans is six months.
You can choose to start paying on them sooner if you choose. Remember, the sooner that you start paying on them, then the sooner that they will be paid off and the less interest that you will have to pay.
Also, after you leave school, whether your student loans are subsidized or unsubsidized, they will accrue interest. So be prepared for the balance that you owe to go up if you are not paying them for those six months.
(4) Repayment Options for Student Loans
There are a BUNCH of student loan repayment options for federal student loans (which make up the majority of student loans in the US). A lot of private student loans also have flexible payment options as well.It would be outside the scope of this article to go over all of them.
If you want a more in depth look at the different student loan repayment options, check out this article that I wrote here.
However, it is important to know that you WILL have to repay them. Sure, there is a chance that the federal government could forgive all student loans. But don’t count on it. The only one that will repay your student loans is YOU.
Final Thoughts
Here is the bottom line with student loans:
If you don’t have to take them out, DON’T!
I understand that college is ridiculously expensive and that you cannot pay for it with a summer job like you could 20 or 30 years ago. But do what you can to incur as little debt as possible.
Apply for grants and scholarships, get a full-time job, start a business or side hustle. Do whatever you can to avoid student loan debt. It is not fun.
You can do this!
I am here to help in any way that I can!
If you found this article helpful, please share it with a friend. 🙂
Until next time!
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