An education loan is a loan used to help pay for a college or trade school education, though it can also be used to pay for private schools or prep schools. These loans come in a variety of shapes and sizes.
There are three types of loans: student loans, parent loans, and private loans. Guaranteed or unguaranteed loans are also available. The government is most likely to guarantee student and parent loans, though many agencies work for the government in this regard. Unguaranteed or unsubsidized loans are usually only available from private lenders, and they require a good credit score or significant equity.
For a student whose parents are unable to pay for his or her education, a student loan is usually the best option. Interest on this type of loan accrues and is paid the government while the student is still in school. The loan is usually paid off in installments when the student stops attending school. If the loan is large, these payments can be substantial, so students should only borrow what they require.
Parents who do not want their children to graduate from college in debt should consider a parent education loan. These can also be guaranteed, implying that parents do not need to have excellent credit to obtain a loan. Parents, unlike students, usually start making payments right away. Although interest rates are typically low, a longer repayment schedule means paying a significant amount of interest.
A good credit score is almost always required for a private education loan. Many people take out such a loan using the equity in their home. The private loan, unlike the parent and student education loans, is not usually based on need. When students apply for financial aid, they are frequently informed that they or their parents earn too much money to be eligible. Those who do not have the funds to pay for school up front may be able to borrow against their home equity in these situations.
The private education loan is not guaranteed the federal government, and payments usually begin right away. The interest rates on these loans are usually the highest. They may be more cost-effective if used in conjunction with a home refinance. Because they are unable to qualify for any other type of loan, some adults who work and re-enter school may need to take out a private education loan. To make ends meet, most people must continue to work, at least part-time.
Because students frequently graduate from college with significant debt, it is critical to consider how much of a loan is actually required. The less debt that is taken on, the better. Examine other types of aid that may be available before applying for an education loan. Every year, a large number of scholarships go unclaimed because no one applies. Scholarships that aren’t based on financial need can often help defer some college costs, lowering the amount of money needed to borrow.