Understanding Student Loans

Understanding Student Loans

Students who opt for higher studies often find that they lack the required capital to fund their anticipated study program stretching perhaps to several years. Fortunately, there are many institutions that a student can turn to for assistance for financing his education program. Except in the case of grants and scholarships, all other loans taken have to be re-paid; and unfortunately this fact does not strike the borrower forcefully enough at the time of obtaining loans. The obvious reason for same is since many repayments start only on graduation; and due to a feeling of satisfaction for the time being at finding the funds to cover more and more of the direct education costs and other education related expenses.

There is a cost attached to every loan that you take and it is very important that you educate yourself first on the types of loans available, which carry fixed as well as variable rates of interest during the lifetime of the loan. Even at fixed rates, the rates attached to different types of loans differ, as does the repayment periods, deferment options etc. It is also pertinent to visit websites of different lenders

18 Ways to Reduce Your Mortgage Loan

1. Skip the introductory rate (Honeymoon)

Beware of lenders bearing gifts! Introductory or honeymoon rates have long been an important marketing tool for lenders. You are initially offered a cheap rate on your loan to get you in the door but once the honeymoon period is over, the lender will switch you to a higher variable rate of interest. An example of this is an Adjustable Rate Mortgage (ARM).

There are two problems with this scenario. First, the variable rate is often higher than some of the lower basic loans available so you could end up paying more. Second, you need to clearly understand that a honeymoon rate applies only for the first year or two of the loan and is a minor consideration compared to the actual variable rate that will determine your repayments over the next 20 or so years.

You may also be hit with fairly steep exit penalties if you want to refinance in the first two or three years to a cheaper loan. So make sure you fully understand what you are letting yourself in before setting off on a “honeymoon” with your lender.

2. Pay it off

Best School Loan Consolidation Options

School loan consolidation provides you an opportunity to merge all your loans and pay only once for all of them. There are a number of options catering to almost everyone’s needs. These options are divided into the following two major categories:

  1. Federal loan consolidation
  2. Private loan consolidation

1. Federal:

This type of school loan consolidation provides financial help to those who are enrolled at schools that participate in federal aid programs. By school we mean a two-year or four-year degree awarding public or private college, university or trade school.

Consolidation can help reduce your student loan debt by fixing and reducing the interest rate on your loans. This loan option will also combine your separate loan debts into one package thus managing your debt paying options.

Eligibility for federal loan:

In order to qualify for federal consolidation, one should check out the following things before applying for it.

  • The candidate should no longer be enrolled in school (defined as being enrolled less than half-time)
  • You must be in the ‘grace period’ of the loan or must be actively repaying your loan.
  • Most consolidation companies require a minimum loan amount i.e. $10,000 is typical.

Types