How Student Loans Work

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It can be off-putting, this whole student loan business, particularly if you’ve never been through it. But you know you need a loan or two to pay for tuition and related expenses, so you may as well stop procrastinating and dive into what it’s about. It’s not that bad, really, once you understand how student loans work. Let’s get to that – and more.

What Exactly Are Student Loans?

These are types of loans that were created to assist students in the payment of post-secondary education expenses including tuition, and books, plus other supplies and living costs. Student loans differ from scholarships and grants in that loans must be repaid. 

How Many Students Take Out Loans?

These days, some 70 percent of students in the United States wind up getting loans to attend college. See there? You’ve got ample company. Nearly every student goes through this.

So How Do Student Loans Work?

The first thing you do, along with your parents, is fill out and submit the Free Application for Federal Student Aid, better known for its acronym FAFSA. The application, which requires financial and other info, is sent to the schools in which you’re interested. Each school’s financial aid office will run your numbers and see what you can get. And even if you don’t think you’ll qualify, do fill out the form, since most students do get something. If you want a private loan, you can apply for those directly from a lender such as a bank, credit union or state agency.

What Kinds of Student Loans are There?

The two main types of student loans are federal and state, plus student loan refinance once you’ve left school. If you’re wondering what is refinancing, the financial strategy permits you to combine all or some of your loans into a single new loan, usually with a better interest rate. This saves you cash.

What are the Kinds of Federal Loans?

Federal student loans include:

  • Direct subsidized loans. For these loans, undergrads need to demonstrate financial need on their FAFSA. After you leave school or fall below a certain number of credit hours, you get six months before you’ll need to start making payments as interest now accrues.
  • Direct unsubsidized loans. No need to show financial need with these loans, which are available to grad and undergrad students. Oh, and interest begins accruing right away.
  • Direct PLUS loans. Your folks can take these out for you if you’re dependent. They’ll be subject to a credit review, though, and a separate application is required. 

What About Private Loans?

Each lender has its own terms and conditions, so you’ll have to do your research. Start looking early enough to find the best fit for you. Now, these loans may – but not always – be pricier and have higher interest rates than federal loans, and you must pony up all the interest. However, this is where a servicer such as Juno comes in. If you can qualify with a particular lender, Juno can work to get you the best rate possible as well as repayment flexibility. Juno can also come in handy if for some reason you do not qualify for federal loans.