It doesn’t matter if you are planning on taking out student loans in the near future or have in the past, student loans can be confusing. Trying to understand the types of student loans might leave you feeling overwhelmed.
Keep reading to learn and understand the differences because believe it or not it could save you thousands in the future.
Federal Student Loans
Federal student loans are offered to students by the government. These loans have fixed interest rates which is good for the borrower because you don’t have to worry about the interest rate changing or going up; it stays the same until you are done paying off the student loan.
There are two types of federal student loans: subsidized and unsubsidized. Subsidized loans are when the government pays the interest while you are in deferment or while you are in school. On the other hand, unsubsidized loans start to accrue interest as soon as the loan is taken out.
Of course, if you qualify for federal student loans you will more than likely save money in the long run. Although the application process is a bit more complicated than private student loans, the extra work is almost certainly worth the money you’ll save.
Private Student Loans
Private student loans are given by credit unions, state loan programs, banks, and non-federal institutions. One of the reasons private loans are taken out is because typically you can take out a higher amount and if you have excellent credit you might qualify for a much lower interest rate.
However, one thing you need to keep in mind is that private student loans come with a variable interest rate. As a result, you will never know if your interest rate will go up, which will result in higher payments. Also, as soon as the student loans are taken out the interest will begin to accrue.
Another drawback is that when it comes time to repay a private loan, you will not have as much flexibility as with federal student loans. Federal student loans offer income-driven repayment plans and on certain occasions might even be forgiven. But with private student loans, you will not have either one of those options — no matter the circumstances.
If you end up taking out multiple private student loans then debthunch.com can come in handy in the future. You will be able to put all of your loans together instead of having multiple payments you owe.
Types of Student Loans Pro
Hopefully, now that you are aware of the different types of student loans and some of the lingo that comes with these loans, you’re feeling more like an expert on the topic — or at least more confident.
The bottom line is that student loans do not have to be confusing or overwhelming. Subsidized federal loans are the ideal loan if you qualify for them because you will have a lower interest rate and will also have more repayment options in the future.
Photo Credit: shutterstock