What is a student loan?

Home Forums Student Loans What is a student loan?

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    Team StellarFi
    Team StellarFi

    A student loan is a lump sum of money a student borrows from the federal or state government, or a private company to cover the costs of education. The loans may go toward tuition fees, books, or living expenses depending on the terms of the loan. 

    For many students, loans are a necessary part of being able to pay for higher education, especially if the student or their family cannot afford to cover the total cost out of pocket. 

    Students are generally expected to pay back these loans with interest once they graduate. 

    The advantages of taking out a student loan are:

    • You don’t need a credit history to apply for and receive a student loan.
    • Students who may otherwise be unable to afford an education get financial assistance.
    • Interest rates on federal student loans are fixed over time and have lower interest rates compared to other types of loans.
    • You don’t need to repay the loan until after graduation.
    • With federal loans, you can opt for loan forgiveness or delay repayments based on eligibility.
    • With federal loans, you may be eligible for flexible repayment options based on income.

    The disadvantages of taking out a student loan are:

    • There may be limits to how much you can take out in federal loans each semester or year.
    • You have to pay back the loan even if you don’t finish the program.
    • Private loans may need a cosigner and interest rates on these loans may fluctuate.
    • Paying back student loans can be expensive based on how much you borrow and what the interest rates are at a given point in time.
    • Not everyone will qualify for certain loans.

    When deciding between federal and private student loans, federal student loans are the better option for most students. They have lower interest rates, more flexible repayment terms, and more benefits than private loans. However, if you need to borrow more money than you can get in federal loans, you may need to consider a private loan.

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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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