Tuition fees continue to rise and millions of students are saddled with hefty student loans. In fact, the average student graduates with about $30,000 in student loans. It’s slightly larger than a Tesla Model 3 or Wedding. Without student loans, many people wouldn’t even be able to attend college.
Student loans become a reality for most people heading to college. But where do student loans come from, how much can you borrow, and how much do they really cost?
In and out of student loans
Student loans are available for both undergraduate and graduate students. They are need-based, and income is just one factor of it. Student loans are issued by the government (hence the term direct loans – directly from the government). However, private student loans are also available. The amount issued to a student depends on the student’s financial situation. The final decision rests with the school.
A financial aid package is the first step towards receiving student loans. Financial aid packages consist of gift aid (such as grants and scholarships), loans, and vocational study programs.
What is student loan collateral? It’s important to remember that your student loan collateral is your future income. When you buy a car and take out a car loan, the car is the collateral for the car loan. So if you don’t pay the car note, the bank can seize your car. With student loans, it’s important to remember that the collateral is your future income. If you don’t pay back your student loans, the government can garnish your wages and withdraw your tax returns. Always keep this in mind when renting.
How to apply for a student loan
of Fafsa, or the Free Application for Federal Student Aid must be completed each year to receive financial aid. FAFSA deadlines change each year. You can check the deadline here. Make sure your FAFSA is submitted on time. Otherwise, a late FAFSA will certainly complicate your financial situation and make you pay your tuition fees.
To find out how much financial aid you will be given, check below. FAFSA4 caster website.
Once financial aid is awarded, you can receive gift aid and loan amounts. There should also be a breakdown of your school’s expenses. Schools display cost information in different ways, and actual costs can vary significantly. Depending on what you see, you may need to contact the school about the cost of:
- Fees (labs, etc.)
Add other known costs. It’s better to overestimate than to underestimate. Many students, even with financial aid, find themselves short of money. This is due to many costs not taken into account.
how much to borrow
After calculating your yearly tuition, subtract donations and money your parents saved for college. If you saved money for college, deduct that as well. The remaining amount is not only for direct tuition (tuition and housing), but also for living expenses while in school. If you have a job, consider how much of the above costs can be covered. At this point, you should have a final number on your costs.
That last number is the amount you need for your school loan. The less school loans you have to borrow, the better. As you can see, the loan amount is not just for tuition and books. All costs associated with being a student must be taken into consideration.
One caveat about student loans: Students often get the full amount awarded even when they don’t need it. If you don’t need the full amount, you can take as much as you need. Taking out more than you need will cost you interest and increase your monthly loan repayments.
Key rules of thumb: Our key rule of thumb for how much you should borrow is that you should never borrow more than you expect to earn in your first year after graduation. .
Related: How to Calculate College ROI
student loan repayment
If you’re on federal student loans, there are different repayment plans, including income-based repayment plans, to help you pay off your student loans in an affordable way.
You should choose a repayment plan that you can afford to pay each month. If you’re not sure where to start, consider using a tool like Student Loan Planner.
Governments offer many loan features that are not available with non-government loans. These include:
- Forgiveness: You don’t have to start making student loan payments until you graduate.
- Difficulty: During repayment, payments can be deferred until finances improve.
- Low Interest Rates: Most loans have interest rates in the single digits.
- Low Commencement Fees: Fees for executed loans are ~1% of the value of the loan.
If you’ve been enrolled for six months or more, you don’t have to start making government loan payments until six months after you graduate. Additionally, subsidized loans do not accrue interest until after graduation, while nonsubsidized loans start accruing interest immediately.
See our complete guide to subsidized and non-subsidized loans here.
According to the Federal Reserve, the average monthly payment is $393 and the median monthly payment is $222. The repayment amount depends on the repayment plan and the interest rate. Keep in mind that graduate loans usually have higher interest rates than undergraduate loans.
A must-have for most students
As tuition fees continue to rise, student loans have become a necessity for nearly every student who wants to go to college. Student loans can be a huge source of funding for college, but planning your expenses and borrowing only the amount you need can help you avoid carrying on too much unnecessary debt.