Paying for college through student loans

As the cost of college tuition continues to rise, students and their families are beginning to realize that the price of a higher education may be beyond their means. A college degree is becoming more critical in order to compete in today's fierce job market. But, earning a degree often requires tens of thousands of dollars. Fortunately, student loans are available from a variety of sources. Below, you'll learn about these sources as well as how to repay the loans once you've graduated from college.

Types Of Student Loans

There are 3 primary types of student loans. The first type include loans that are granted to students directly from the federal government. The second type are loans made by banks and other financial institutions that are also backed by the government. That is, if a bank lends you money and you default on the loan, the bank's exposure to risk and loss is limited. The third type of loan offered to students includes private loans.

Many students use all 3 types of loans to pay for tuition because each type rarely covers the entire cost. If you choose to do the same, try to borrow as much as possible from the sources backed by the government. The interest rates tend to be lower throughout the life of the loans, making repaying them less-costly over time.

Repayment Plans For Your Student Loans

There are 4 basic repayment plans offered to those who borrow money for college. A "standard" repayment plan is the most common. The monthly amount that you're required to pay remains the same until the balance is paid. If you need to lower your monthly payments, "extended" repayment plans are often available. This type of plan effectively stretches the life of the repayment terms up to 25 years.

If you have difficulty meeting the repayment terms of the loan due to a limited income, you may qualify for an "income-sensitive" plan. This type of plan lowers your monthly payments according to your monthly income. Typically, your payments must cover the interest on your student loan.

The last type of repayment plan is referred to as a "graduated" plan. This is designed to help people who may currently have a limited monthly income, but expect that income to increase in the future. Students usually start paying a monthly amount that matches the interest that accrues on their student loans. The monthly amount increases every 2 years over the life of the loans. When you've graduated from college and you're looking for a job, a graduated repayment plan can give you the time you need in the beginning of your career to establish yourself.

Taking Advantage Of Student Loans

Student loans can provide you with the opportunity to earn a college degree despite the rising cost of tuition. But, you have to be able to manage your finances well in order to pay the loan balances. If you run into financial problems in the future, you can usually work with your lender to lower the monthly payments.