Did you know that there are two types of student loan programs? There’s the Subsidized Student Loan and Unsubsidized Student Loan. The former is given in two different forms-secured and unsecured. You have to repay your loan according to certain guidelines, which begin at tax year. So if you don’t want to take the risk of defaulting, this is a good way to go.
The other form is called “”unsubsidized student loan or “”secured student loan. In this case, your lender requires you to pledge collateral which is your house. This is a good way to help students with low credit scores who otherwise can’t avail of other options. These can also help students who are about to go through a tuition free period and can no longer afford to pay for their tuition fees. Usually, you can extend your repayment term up to 30 years after graduation. If you file for bankruptcy during the grace period, you can no longer do so.
Private lenders and federal student loans have some very important differences. While borrowers in the later may enjoy tax breaks and lower interest rates, there are other disadvantages as well. First, borrowers in the later have to pay higher interest rates compared to borrowers in the former. And with stricter lending requirements, borrowers in the former also have a smaller choice of private lenders.
On the other hand, private student loans have many advantages. First, they don’t require borrowers to declare bankruptcy. Also, they don’t have strict requirements like borrowers having to be current on their student loan debt. Some private student loans also let borrowers shorten the repayment period after graduation. This gives them more time to either pay off their loan early or work to reduce their student loan debt as much as possible.
The main article is when it comes to student loans and their alternatives. Borrowers should do their own research to find out which type of program is best for them. They also need to compare which type of program is better suited to their individual circumstances. Here are some of the alternatives as listed by the government:
Federal Direct Consolidation Loans – This type of program allows borrowers to combine all of their federal student debt into one payment. This payment is used to pay for the borrower’s college tuition, plus any private loans. This is an option for borrowers who qualify for subsidized and unsubsidized student debt. The borrower’s new payment amount will be lower than their combined payment at the time of graduation. For the borrower, this means that he or she doesn’t have to worry about accruing more student debt after graduation, and that they will only have one payment to focus on. But borrowers in default on their current federal loans may be excluded from this program.
Loan Rehabilitation Loans – In order to encourage students to make their loan repayments on time, the government offers several financial incentive programs. One of these is the loan rehabilitation plan. Under this plan, the government compensates lenders who agree to accept a reduced interest rate for the rest of the student loans, instead of the standard interest rate. The main article in this series discusses both the advantages and disadvantages of this option. This main article can also be found under the main article on student loans.
Private Student Loans – The government does offer one advantage to borrowers of both federal government and private student loans; lower interest rates. For borrowers with good credit, there’s a fair bit of hope. Borrowers with credit in good standing have a good chance of qualifying for zero rate private student loans. For those borrowers who don’t qualify, though, the interest rates can be much higher.