What is a Student Loan?

What is a Student Loan_

There are many long term benefits to earning your college degree. There are also significant financial consequences that you have to consider, such as how you’ll pay for college. For many, it can involve student loans. A student loan is money you borrow from the federal administration or a private organization to pay for college expenses and repay later with interest. By educating yourself about the different types of college loans and making smart borrowing decisions, you can limit the amount of debt you have once you’ve earned your degree.

How to Get a Student Loan

To apply for a federal student loan, the first thing you have to do is complete the Free Application for Federal Student Aid. Otherwise known as the FAFSA. States and colleges use the information from the FAFSA to govern your eligibility for financial aid. You will need to submit personal and financial information for yourself or your parent(s) or guardian(s) if you are their dependent. Some of the information you will need includes you:

  • Bank statements and investment records
  • Federal income tax returns, W-2 forms, and any other records of money earned
  • Social Security Number (or Alien Registration Number if you are not a U.S. citizen)

Types of Student Loans

While many students rely on federal loans to pay for their education, there are several different types of student loans. The differences are essential to understand.

Direct Loans

The U.S. Department of Education (DOE) offers loans directly to students earning their degrees. The loans are available to students attending a 4-year college or university as well as “trade, career or technical” schools, according to the DOE website. You may also hear direct loans referred to as Stafford Loans or Direct Stafford Loans. There are two kinds:

  • Direct Subsidized Loans – Once your school determines how much you can borrow built on your financial need and you are awarded the loan, the DOE pays the interest on the loan while you attend school, as long as you attend college at least half-time, as well as the first six months after you leave school.
  • Direct Unsubsidized Loans – Unsubsidized loans are not built on your financial need, but your school will govern how much you can borrow based on the college’s tuition and other costs and any other financial aid you receive. The interest that accumulates on the loan while you attend school is added to the amount you will repay once you leave college.

Direct PLUS Loans

A Direct PLUS Loan is available to students pursuing a graduate – or master’s – degree or to parents of undergraduate students. They are sometimes referred to as a Parent PLUS Loan or Graduate PLUS Loan, depending on who the borrower is.

While a Direct PLUS Loan isn’t based on financial need, the DOE will conduct a credit check to ensure you don’t have an “adverse credit history.” If you do, you may still be able to get a PLUS Loan if you meet additional requirements, including finding an “endorser” who agrees to repay the loan if you can’t or by demonstrating that there are extenuating circumstances.

Benefits of a Student Loan

There are many benefits to taking out a student loan, but it’s significant to weigh the pros and cons beforehand you make a decision. Here are some of the benefits of student loans:

  • Access to higher education: Student loans can help you pay for college, which can give you access to better education and better job opportunities.
  • Flexible repayment options: There are many dissimilar repayment options available for student loans, which can make it easier to afford your payments.
  • Borrower protections: Federal student loans come with a number of borrower protections, such as loan forgiveness programs and forbearance.
  • Tax benefits: You may be able to deduct some of the interest you pay on your student loans from your taxes.
  • High-interest rates: Student loans typically have high-interest rates, which can make your payments more expensive over time.
  • Extended repayment terms: Student loans typically have long repayment terms, which means you’ll be making payments for many years.
  • Risk of default: If you default on your student loans, you could damage your credit score and make it more challenging to get other loans in the future.

Overall, the decision of whether or not to take out a student loan is a personal one. There are many factors to consider, such as your financial situation, your career goals, and the type of school you want to attend. It’s significant to weigh the pros and cons carefully before you make a decision.


In conclusion, student loans can be a helpful way to pay for college, but it’s important to weigh the pros and cons carefully before you make a decision. There are many factors to consider, such as your financial situation, your career goals, and the type of school you want to attend. It’s also important to remember that student loans are not the only way to pay for college. There are many other options available, such as scholarships, grants, and work-study programs. You should explore all of your options before you decide whether or not to take out a student loan.

Written by Go Business Tips


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