student loans explained

student loans

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what's in this lesson?

Unfortunately, college isn’t free in the USA — and it’s not cheap either! And unless you or your family can afford paying tuition—or you get a scholarship or grants—you’re going to need a student loan. In this lesson, we’ll break down what a student loan is, the types of student loans, and how to apply for a student loan.

student loans explained

student loans

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  • Overview
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student loans explained

student loans

Unfortunately, college isn’t free in the USA — and it’s not cheap either! And unless you or your family can afford paying tuition—or you get a scholarship or grants—you’re going to need a student loan. In this lesson, we’ll break down what a student loan is, the types of student loans, and how to apply for a student loan.

What is a student loan?

 

A student loan allows you to borrow money and pay it back at a later date, with interest. Not to get all lawyer-y, but it is important to know that a loan is a legal obligation. You’re responsible for repaying the amount you borrow plus the interest on it.

 

So what exactly is interest? It’s essentially the cost of using someone else’s money. It costs money to borrow money. Interest is commonly expressed as a percentage of the total amount borrowed. The average interest rates on student loans (depending on the type of loan) range from 2.75% to 12.99%.  

 

Ideally, your student loan payments should be a small percentage of your salary after you graduate. You might want to research starting salaries in your desired field so you can keep those in mind when deciding on the right student loans. But if you don’t know what you want to be when you grow up—that’s cool too!  

 

Types of student loans

 

There are two types of student loans.

 

The first type is a federal student loan. That means the lender is good ole Uncle Sam (AKA the federal government). Federal student loans offer many benefits not typically associated with the second type of loan…

 

A private student loan. Don’t worry, there’s nothing secret about this kind of loan. It’s just that private loans are made by private organizations. The terms and conditions on these loans are different from federal student loans. Oftentimes, they can be more expensive. 

 

Not sure which one to pick? No worries. Check out our lesson on Federal vs. Private Student loans.  

 

How to apply for a student loan

 

The application process for federal and private student loans is different. 

 

To apply for federal student loans, you’ll need to file a FAFSA or Free Application for Federal Student Aid. Information on the FAFSA determines how much you can borrow. Then, your college sends you a financial aid offer with details on how to accept your loan. 

 

Applying for a private student loan is a little different. You apply for this type of loan with an individual lender. That lender checks your credit score to see if you qualify for the loan and sometimes requires a loan co-signer. 

 

A co-signer is a parent, close family member, or friend who agrees to pay the loan if you do not. So maybe make your co-signer breakfast or wash their car before you ask them to help you apply for a private student loan!

 

Whether you need a co-signer or not, you are not alone in applying for a student loan. There are nearly 45 million borrowers who collectively owe $1.7 trillion in student loan debt. In other words, we are all in this together! 

what's in this lesson?

Unfortunately, college isn’t free in the USA — and it’s not cheap either! And unless you or your family can afford paying tuition—or you get a scholarship or grants—you’re going to need a student loan. In this lesson, we’ll break down what a student loan is, the types of student loans, and how to apply for a student loan.

Transcript

What is a student loan?

 

A student loan allows you to borrow money and pay it back at a later date, with interest. Not to get all lawyer-y, but it is important to know that a loan is a legal obligation. You’re responsible for repaying the amount you borrow plus the interest on it.

 

So what exactly is interest? It’s essentially the cost of using someone else’s money. It costs money to borrow money. Interest is commonly expressed as a percentage of the total amount borrowed. The average interest rates on student loans (depending on the type of loan) range from 2.75% to 12.99%.  

 

Ideally, your student loan payments should be a small percentage of your salary after you graduate. You might want to research starting salaries in your desired field so you can keep those in mind when deciding on the right student loans. But if you don’t know what you want to be when you grow up—that’s cool too!  

 

Types of student loans

 

There are two types of student loans.

 

The first type is a federal student loan. That means the lender is good ole Uncle Sam (AKA the federal government). Federal student loans offer many benefits not typically associated with the second type of loan…

 

A private student loan. Don’t worry, there’s nothing secret about this kind of loan. It’s just that private loans are made by private organizations. The terms and conditions on these loans are different from federal student loans. Oftentimes, they can be more expensive. 

 

Not sure which one to pick? No worries. Check out our lesson on Federal vs. Private Student loans.  

 

How to apply for a student loan

 

The application process for federal and private student loans is different. 

 

To apply for federal student loans, you’ll need to file a FAFSA or Free Application for Federal Student Aid. Information on the FAFSA determines how much you can borrow. Then, your college sends you a financial aid offer with details on how to accept your loan. 

 

Applying for a private student loan is a little different. You apply for this type of loan with an individual lender. That lender checks your credit score to see if you qualify for the loan and sometimes requires a loan co-signer. 

 

A co-signer is a parent, close family member, or friend who agrees to pay the loan if you do not. So maybe make your co-signer breakfast or wash their car before you ask them to help you apply for a private student loan!

 

Whether you need a co-signer or not, you are not alone in applying for a student loan. There are nearly 45 million borrowers who collectively owe $1.7 trillion in student loan debt. In other words, we are all in this together! 

Additional Resources

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