In light of the economy’s recent financial crash, the costs of putting a child through college has gone through the roof and with it a dramatic increase in the percentage of our college drop-outs. But the silver lining in this grim scenario is that more and more institutions are recognizing the need to provide for financial aids to these student to help pay for their educational requirements which includes the tuition fee costs and additional out-of-pocket expenses that every student needs in order to survive college life.

How do Student Loans Work?

Student loans are no different from personal loans as they both utilize the same lending principles with a few minor adjustments to make it more suitable to students. As with most loans, student financial loans also come with their own interest rates which may differ depending on the current standard interest fee and the borrower’s credit history. But as they are specifically meant for students, they are of course given much more flexibility in repayment terms and are priced at a significantly lower interest rate.

Understanding the Avenues by Which They Work

For any aspiring college student who is looking to take out a loan, there are actually 2 avenues that you can take.

Federal Funded Student Loans

Through the assistance of the US Department of Education as mandated by the government, students can acquire a substantial financial assistance in the form of federal funded student loans. As they are primarily intended to assist students complete their college degree, they are awarded with a very reasonable interest fee and is equipped with friendlier terms for repayment making it the most desired student loan. They are further modified into three categories namely the Perkins, Stafford and Family Plus student loans. Each type has been created in order to address the varying financial liquidity and situations of each borrowing student.

Private Student Loans

While most students get by with their federal loans, a large percentage however needs to obtain privately funded financial assistance to complement their other expenses. But as they are given by non-government organizations, they do operate with a higher interest charge and are more set in their payment options. Experts do warn that in taking out private student loans, be extra mindful on their accompanying terms and clauses, it is best to look into your current finances and assess only how much you will need.

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