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Essential Insights on Student Loans
Oct 19, 2024
Understanding Student Loans
General Overview
Student loans are a significant part of college financing.
69% of the class of 2019 took out loans, averaging nearly $30,000.
Loans are often part of a broader financial package, including grants, scholarships, and work-study programs.
Importance of Loan Awareness
Exit counseling is mandatory for understanding loan terms and repayment.
It's crucial to be informed about loans before, during, and after college.
Types of Student Loans
Private Loans
Issued by banks, credit unions, or schools.
Terms vary widely; can be variable or fixed interest rates.
Typically unsubsidized; responsible for all accruing interest.
Set repayment terms (5-20 years).
Not eligible for loan forgiveness programs.
Interest rates can change drastically.
Can be refinanced based on credit score and other factors.
Federal Loans
Funded by the federal government.
Types: Direct Subsidized, Direct Unsubsidized, and Direct PLUS Loans.
Subsidized
: Government pays interest while in school.
Unsubsidized
: Interest accrues and must be repaid.
PLUS Loans
: For parents, repaid by them.
Fixed interest rate (currently 4.53% for undergraduates).
No credit check required (except for PLUS loans).
Offers various repayment and deferment options.
Repayment Options
Private Loans
Repayment can begin while in school.
Monthly payments post-graduation include principal and interest.
Options depend on the lender, e.g., forbearance or deferment.
Refinancing possible with good credit.
Federal Loans
Flexible repayment plans, can change anytime.
Standard Plan
: Fixed payments over a certain period.
Graduated Plan
: Payments increase over time.
Extended Plan
: Longer repayment period.
Income-Based Plan
: Payments based on income.
Public Service Loan Forgiveness (PSLF) available for qualifying jobs, forgiving loans after 120 payments.
Key Takeaways
Be proactive in understanding your student loans.
Avoid viewing loans as "imaginary money".
Consider the long-term financial impact.
Stay informed about repayment options and changes.
For more financial tips, consult resources like The Financial Diet.
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