The Truth About Student Loans

The cost of higher education continues to rise. In the United States, total student loan debt is now
greater than that of credit card debt. It is important for students and potential co-borrowers to
understand the various types of loans, as well as the resources available during repayment.
Student Loan Options
Subsidized loans are awarded to students based on their financial need. While the student is in
school the federal government pays any interest on the loan. Therefore, subsidized loans do not
gain any interest before the student enters repayment. This will save the borrower a great deal of
money over the course of repayment.
Unsubsidized loans begin accruing interest when the loan money is first disbursed. If this
interest goes unpaid, it will be added to the loan’s principal. This means the borrower will pay
interest on the principal of the loan, as well as any interest that has already been added to the
balance of the loan. This will cost the borrower a lot of money in additional interest over time.
Credit Cards have become readily available and widely used by college students in recent
years. The interest rates on credit cards are generally higher than those on both subsidized and
unsubsidized student loans. In addition, borrowers must make monthly payments. Failure to
make payments on credit cards can lead to a poor credit score and can affect an individual’s
ability to obtain further credit or even find a job.
Repayment
Grace periods are offered by many student loans before repayment begins. Make sure you know
the grace period duration for your loans so you are prepared when payments become due.
Discounts may be available for borrowers who set up auto-payment for their account. Many
lenders also offer reduced interest rates for borrowers who make timely payments.
Consolidation may benefit some borrowers. Consolidating loans with one lender allows the
borrower to make one monthly payment. It may also be possible to lock in a lower interest rate
with consolidated loans. Borrowers should beware, since consolidating student loans may
exempt them from some beneficial repayment programs.
Failure to pay student loans can have a serious effect on a borrower’s credit. You should
contact your lender immediately if you are unable to make a loan payment. You may be able to
change your payment date or the structure of your repayment plan to better accommodate your
budget. If you are experiencing financial hardship, you may be eligible for deferment or
forbearance. Contact your lender to learn more about your options.
To learn more about student loans you may download this booklet from the U.S. Department of
Education. Canadians can learn more at www.canlearn.ca.

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