Student loans are meant to help students fund their higher education pursuit. Some mistakenly believe that student loans are meant only for tuition, when, in fact, they can be used for so much more. Some common uses include:
- Room and board
Keep in mind, however, that these expenses must all be related to or a product of one’s pursuit for a higher education. In other words, borrowers cannot take out loans meant for college when they are not pursuing a degree.
These financing tools come in one of two primary forms: federal or private.
Federal student loans tend be the preferred type amongst student borrowers. These government-backed products typically come with favorable repayment terms, competitive interest rates, and options for those facing financial difficulties. Additionally, there are many subtypes of federal student loans that are each designed to provide aid to specific groups of people meeting specific conditions.
Private student loans, on the other hand, are offered by lenders who are not affiliated with the government. While these types of financing usually come with higher interest rates and more strict repayment terms, they are often easier to qualify for.
Regardless of the type of college loan you apply for, be careful and read the fine print. These financial products are not short-term commitments. Instead, they can last 10 years, 20 years, or more, making them comparable to mortgages.
What’s more is they cannot be discharged through bankruptcy. It’s largely due to this prohibition that the nation’s student loan debt has overtaken the country’s outstanding credit card debt. FinAid, an authoritative higher-education informational source, said that our outstanding student loan debt is now over $1 trillion, and is increasing at a rate of nearly $2,900 a second.
That trajectory can be attributed to the fact that each year more than $100 billion in federal student loans are originated, while another $10 billion is originated in private student loans.
Keeping these statistics in mind, signing the dotted line on a student loan agreement is something that should only be done after careful consideration and financial planning. To learn more about college financing, read our FAQs and articles, or visit our news page for up-to-date coverage of the industry.