• Menu
  • Skip to right header navigation
  • Skip to main content
  • Skip to secondary navigation
  • Skip to primary sidebar
  • Skip to footer

Before Header

WhatsApp us today for help!  +44 7444 827 917

  • Facebook
  • LinkedIn
  • Twitter

Free Study – 2022-23

Study Abroad

  • Courses
  • Scholarships
  • Interview Tips
  • Essay Tips
  • Immigration
  • Contact Us
  • Search

Mobile Menu

  • Courses
  • Scholarships
  • Interview Tips
  • Essay Tips
  • Immigration
  • Contact Us
  • Search

Schedule A Free Consultation Now!

We can you find scholarships with your admissions.

+44 7444 827 917

  • Facebook
  • LinkedIn
  • Twitter

How do Student Loans Work?

You are here: Home / Blog / How do Student Loans Work?

August 24, 2020 //  by Amit Kumar

Table of Contents

  • Introduction
  • What Are Student Loans?
  • Types of Student Loans
    • Government Student Loans 
    • Private Student Loans 
  • How to Apply for Student Loans?
  • Student Loans Interest and Repayment 
  • Repayment Defaults
    • Deferment
    • Forbearance
    • Default
    • Forgiveness
    • Re-financing
  • Conclusion: You Can Avoid Student Loans

Introduction

Every high school student dreams about going to college. But, only a few persons can afford the bills that come with pursuing a college degree. Many governments, colleges, institutions, and individuals offer different financial aids to students.

Scholarships and grants are usually limited, and there is high competition for them. Student loans have become a more accessible option in recent years for many students.

Read More: Are Student Loans Worth It?

But, a lot of students abuse the privileges of these loans, while others find it challenging to pay back. This article will tell you everything you need to know about student loans and how to make the best out of it.

What Are Student Loans?

Student loans are monies that are given to students to help them pay for their college-related bills. These bills include tuition, accommodation, feeding, transportation, health insurance, books, projects, etc. 

Student loans differ from scholarships and grants because they are repaid with interest. Borrowers usually sign a promissory note that includes all the terms and conditions for receiving the loan.

Read More: What Happens If You Don’t Pay Student Loans?

Also, lenders don’t supervise how students spend their credits. This is one of the reasons why America has one of the biggest student loan crises (about $1.6). Some students also use these loans for vacation trips. Others buy personal properties that aren’t related to their coursework.

Types of Student Loans

There are two categories of student loans: government student loans and private student loans.

Government Student Loans 

Governments around the world provide different types of student loans. These loans are often available to only students in the government-owned institution. Government students’ loans come with a lot of benefits.

The interest rates are lower compared to private loans. Also, the repayment plans are flexible, and there are little or no penalties. Some government student loans come with an income flexible repayment plan that allows students to pay as they earn.

Read More: Do Student Loans Affect Credit Score?

Students can also enjoy partial or total loan forgiveness in some countries. For example, the U.S. government grants loan forgiveness to borrowers who choose to work in the public service sector (including non-profit organizations) after some years.

The demand for government loans increases every year because of these benefits. The selection criteria are competitive, and the application process is time-consuming. 

Private Student Loans 

Private student loans are offered by lenders that are not affiliated with the government. These are often financial institutions like banks, credit unions, schools, and non-governmental organizations. Most private lenders are out to make profits for their businesses.

Read More: How Long Does It Take to Pay off Student Loans?

This profit bias makes most private loans come with high-interest rates. Also, the interest rate of some private loans may fluctuate with market conditions. Furthermore, private loans are not too flexible, and repayment defaults usually have dire consequences. 

How to Apply for Student Loans?

Applications for student loans are often announced on the college website or by the lending institution. The eligibility criteria and application process for the loans are also stated in the announcement. There are high demand and competition for these loans. Always read the eligibility carefully to make a winning application. 

Read More: Are Student Loans Possible to Get for International Students?

You will be asked to sign a promissory note if the lender approves your loan request. The promissory record is the agreement document that describes the terms and conditions of the loan. Most private lenders also request a credit-worthy cosigner to improve the security of their investments. 

Student Loans Interest and Repayment 

Every student borrowing scheme has a specific maximum loan limit. The maximum loan limit is the amount maximum amount of money a student can borrow at a particular time. It could be fixed or cumulative, but there is always a limit. It is advisable to borrow only as much as you need because you will repay with interest.

Student loans work with simple interest. You will continue to pay the same attention throughout the lifecycle of the loan. For example, if you received a $25,000 loan at an investment of 10% per annum for six years, you will pay $2500 every year for six years.

Read More: How to Get a Student Loan Without a Co-signer?

Your total repayment amount will be $40,000. However, most loans are repaid monthly. So, instead of paying $2500 at the end of the year, you will be paying about $210 every month. 

Always study and understand the repayment options of every loan scheme and its laws. 

Repayment Defaults

What happens if you are unable to afford your monthly repayment? A lot of things could happen. These include:

Deferment

Deferment is a temporary halt of any loan repayment. Some deferment portfolio also stops interest from accruing while others outsource it. Everyone is not eligible for deferment. Deferment is often offered to volunteers and unemployed people. Postponement is rarely a private loan option.

Forbearance

Forbearance, like deferment, also puts your repayment on hold. But the interest on the loan will continue to accumulate, unlike suspension. Lenders often give restraint to borrowers in dire situations. Sometimes forbearance is mandatory.

Read More: Can International Students Apply for FAFSA?

Default

Students who are unable to pay their private loans often end in defaults. The default means that you have failed to meet the agreements for receiving the loan. It comes with many consequences, including litigations and seizure of assets (forced collaterals).

Forgiveness

Some students could receive total loan forgiveness if they are unable to repay their loans. However, there are qualification criteria. Some of these criteria include working in the public service sector (including non-profit organizations) or working in the military. 

Read More: Should I Pay off My Student Loan?

Re-financing

Refinancing is a great way to avoid defaults. It merely is borrowing to repay your loan. Only get a suitable lender that won’t exploit your situation against you. 

Conclusion: You Can Avoid Student Loans

Collecting a loan should be your last financial aid option in college. Student loans come with some future risk that you can avoid if you explore other financial aid options.

Read More: Why Do Students Drop out of College -USA?

You can research scholarship and grant opportunities. You can consider attending a college you can afford. You can take a part-time, freelance, or side-hustle job to support your education. You can cut on your expenses.

Lastly, if you must take loans, only take as much as you need to ace through college. Don’t collect credits to live beyond your means. 

Category: BlogTag: Student Loans

About Amit Kumar

FreeEducator.com blog is managed by Amit Kumar. He and his team come from the Oxford, Stanford and Harvard.

At FreeEducator, we strive to create the best admission platform so that international students can go to the best universities - regardless of financial circumstances.

By applying with us, international students get unlimited support and unbiased advice to secure the best college offers overseas.

Need help with studying abroad? or need a scholarship?

Schedule a no-cost consultation today!

We help students around the world with their college applications and related scholarships. With us you can apply for college admissions and we’ll help you apply for all available scholarships with that.






You May Also Be Interested In:

How to Become Web Developer for Free?

UNESCO Calling Application for International Fund for Cultural Diversity

Colleges in France for International Students

Colleges in Germany for International Students

Best Ways for College Students to Make Money

Christmas Presents for College Students

Best Laptops for High School Students 2020

Best Remote Jobs for College Students

Best International Credit Card for Students

Previous Post: « What is a Passing Grade In College?
Next Post: What is Federal Student Aid? »

Primary Sidebar

RECENT POSTS

How to Become Web Developer for Free?

As an entry level software developer, you can typically expect …

UNESCO Calling Application for International Fund for Cultural Diversity

On March 16, 2022, UNESCO launches the thirteenth call for …

Colleges in France for International Students

Are you thinking of studying overseas, particularly in France? …

Colleges in Germany for International Students

Germany is one of the world's top ten most popular study …

Best Ways for College Students to Make Money

College life is full of new experiences and ideas. You get a lot …

Christmas Presents for College Students

The holiday season has arrived, and it's time to start thinking …

Best Laptops for High School Students 2020

It's not just college students who need laptops for their …

Popular tags

Abroad Australia Canada Career China College Colleges Competition Engineering Essay Essay tips Express Entry Foreign Students Free Online Course Free Online Courses Germany Graduate Immigration India Indian Students International International News International Students Interview Interview Questions Jobs masters New Zealand Online Courses PhD Position PhD scholarship PhD Scholarships Pros and Cons Scholarships Science Student Students Study Study Abroad Study in Canada Study in the USA UK universities USA visa

Footer

About FreeEducator

FreeEducator is a free study abroad and scholarships resource site for international students. FreeEducator was founded in August 2007 by Amit Kumar. The main goal of this site is to provide quality support to international students that allows them to improve their chances of success in life.

Site Links

  • About
  • Contact us
  • Disclaimer
  • Terms of Use
  • Privacy

Contact Us

Free Educator - Study Abroad Marketing Office
+44 7444 827 917

Email:
info@www.freestudy.com

Northways Parade
28 College Cres, London NW3 5DN


Head Office 106 Jaihind Kothi, Prem Nagar Bareilly, 243005, India
  • Facebook
  • LinkedIn
  • Twitter

Site Footer

Free Educator – Best website for international students to study abroad. Free scholarships and Financial aid.

Copyright © 2023 FreeEducator - Study Abroad · All Rights Reserved.