5 Things You Need to Know about Student Loans
Filed under: Culinary
April 27, 2015
Student loans play an essential role in helping many people attend college, but it’s important to know that they’re not all created equally. Because which student loans you select and how well you manage them can have a major impact on your future finances, being financially savvy before, during, and after college is a must.
So, if you’re borrowing money to fund your education, make sure you’re in-the-know on the facts below.
1. Loan Types
- Federal vs. Private: Federal student loans are funded by the government, while private loans are granted by a bank, credit union, state agency, or school.* When possible, it’s typically advisable to pursue federal student loans first, as they offer a number of advantages. You’re not required to repay federal student loans until you graduate, leave school, or change your enrollment status to less than half-time, whereas some, not all, private loans will require payments while you’re in school.
Federal loans offer a fixed interest rate that is often lower than private loans, you won’t need to get a credit check (with the exception of PLUS loans), and in most cases you won’t need a cosigner. Conversely, private student loans can have variable interest rates or higher fixed rates, likely require a credit check, and may require a cosigner as well. Learn more about federal vs. private student loans.
- Subsidized vs. Unsubsidized: Subsidized and Unsubsidized are two types of federal loans. For a Subsidized Loan (obtained based on your financial need), The U.S. Department of Education pays the interest on your loan while you’re enrolled in school at least half-time, for the first six months after you leave school, and during a period of deferment. On the other hand, with an Unsubsidized Loan, you are responsible for the accrued interest on the loan while you’re in school, during grace periods, and deferment or forbearance periods. If you don’t pay it, the accrued interest will be added to the principal amount of your loan, increasing the overall amount you will need to repay.
2. Loan Interest Rates
Congress sets interest rates for federal student loans each year. Current interest rates for loans first disbursed from 7/1/13 to 7/1/14 and 7/2/14 to 7/1/15 are:
- Direct Subsidized Loans: 3.86% / 4.66%
- Direct Unsubsidized Loans (undergraduate): 3.86% / 4.66%
- Direct PLUS Loans: 6.41% / 7.21%
All interest rates are fixed for the entire life of the loan.
3. Loan Disbursement Process
Most student loans cover an entire academic year, with the school releasing the funds in at least two disbursements. At The Art Institutes, your Student Financial Plan will provide you with a schedule of aid payments from each aid program you use. These payments are usually made in equal installments for each term in each academic year. Once the required paperwork is accurately completed, submitted, and you start school, your financial aid is credited to your account at the beginning of each term. Members of the financial services team will be available to help you understand the disbursement process.
4. Loan Balances
There are limits on the total amount of Subsidized and Unsubsidized Loans you’re able to receive each academic year and the total amount you’re able to borrow to fund your education. Limits vary by what year you are in school and whether you’re a dependent or independent student. Be sure to see what applies to you, especially if you’ve taken out loans for a previous degree or at another school, and keep records of your individual balance for each loan as well as the total number for all of your loans. You can monitor your loan balances at www.nslds.ed.gov.
5. Repayment Options
Direct Subsidized/Unsubsidized Loans and Subsidized/Unsubsidized Loans all have a six-month grace period before your first payment is due. A number of repayment options are available, although not all students are eligible for all repayment plans. If you have more than one federal student loan, you may also be able to consolidate them into a single Direct Consolidation Loan, which can help you reduce your monthly payment.
To help you keep the balance of your loan as small as possible, make sure you opt to only receive enough money to cover your student account balance, rather than getting a check for excess funds, and that you always look for alternative funding options like scholarships where possible. It’s also wise to make interest payments on your Unsubsidized Loans while in school, during grace periods, and in deferment or forbearance, because, if you don’t, the additional expense is tacked onto your principal balance.
Still have questions?
No problem, this can all be a bit overwhelming! You can check out our full Financial Aid Guide here, and feel free to contact us at 1.888.624.0300 with questions about the financial aid process or anything else about The Art Institutes.*Financial aid is available to those who qualify.
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