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Sunday, June 26, 2011

The Different Types of Student Loans

There are many different types of student loans available for the student in need. After all, we live a society that believes in equal opportunities. And nobody should be denied the opportunity to acquire a good education just because he or she does not have the financial resources. So it is not only common for students to take on some loans during the course of their education, it is the right thing to do. Once they have graduated, they may then work on repaying these loans.

Unlike other forms of loans like mortgages or cash line facilities, student loans usually come with much lower interest rates. This is stipulated by the government to encourage lending so those with a genuine desire to study can do so. In fact, the government plays an active role in offering student loans themselves. In general, you will see two types of student loans: those offered by the government (federal loans) and those offered by private institutions (banks). Both federal and bank loans offer highly subsidized interest rates for students. On top of that, it is often much easier to get a student loan approved.

Student loans may be awarded to students based on different criteria. Loans are mostly awarded based on financial needs. There are qualifying limits to these loans. But for those who quality, they get to enjoy low interest rates, with a longer repayment period. For those who do not quality, there are other types of student loans. Generally, students who take out unsubsidized loans have to bear the full interest rate themselves. However, this is very rare, as most students do qualify for student loans.

When taking out student loans, it is important to borrow only what is needed. There will always be a need for more money when pursuing an education - more money for books, more school allowance, more money for computers and so on. Here is where the danger lies. If a student is not careful, he may find himself heavily in debt upon graduation. And too much debt is never a good thing. It adds additional burden to the student, and future problems may start to arise.

One common problem is that many students are who burdened with debt tend to go into jobs that they don't really like - just so they can meet the repayments of the loan. This is hardly the formula for a happy life. On hindsight, many students would give anything to go back in time and make themselves stop borrowing.

But that's just wishing. If a student ends up in trouble with the loans, then he may have to actively seek help, usually in the form of student consolidation loans. This allows the student to consolidate all the loans that he has taken into a single contract. This contract will have new terms, which are meant to help the student repay the loan as soon as possible. For instance, it may have a longer repayment period, or a further subsidized interest rate and so on.

Therefore, to avoid this unfortunate predicament, never borrow more than what is really needed.

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