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Student Loans 101: Understanding the Types of Student Loans and Your Best Options

Student Loans College Planning Budgeting

6 minute read

Understanding Student Loans 101

There are a lot of questions when it comes to paying for college. Perhaps the biggest one is how you’re going to afford it. For most students, this means a combination of working, financial aid, scholarships, and taking out student loans to invest in their futures. About 70% of college grads will have utilized student loans by the time they earn their degrees.

Remember, it’s important that you use all the free money available to students first. Then, student loans can help you fill the gap between other forms of financial aid and college costs.

You’ll likely do research first and borrow smart to ensure you can repay those loans when the time comes. But how do you find the right loan for you? Read our Student Loans 101 guide for everything you need to know.

Types of Student Loans

Student loans can be spliced into a few categories, but the two biggest are private and federal student loans. Private student loans are offered by private organizations such as banks, credit unions, state agencies, non-profit lenders, or other groups. This type of loan will have terms and conditions that are set by the lender.

As you may have guessed, federal student loans are offered by the United States government. Federal student loans have very specific terms and conditions set by law. Because federal student loans are backed by the federal government, they are sometimes able to offer low interest rates for borrowers, depending on the type of federal student loan, which can include subsidized and unsubsidized loans.

What is the Difference Between Federal Subsidized and Unsubsidized Loans?

Subsidized Student Loans:
One of the basics of Student Loans 101 is knowing the difference between subsidized and unsubsidized loans. Subsidized federal student loans (also known as Direct Subsidized Loans) are student loans from the federal government that are available to undergraduate students based on their financial need. A student’s financial need, as determined by the Free Application for Federal Student Aid (FAFSA), helps to set how much a student may borrow. While the student is in school at least half-time, the federal government will pay the interest on the loan. You also have a grace period for the first six months after leaving school before payments start.

Unsubsidized Student Loans:
The other side of the federal student loan coin is the direct unsubsidized loan. Different from subsidized loans, unsubsidized loans are available to undergraduate and graduate students. You are not required to show financial need for an unsubsidized loan. You will be responsible for any interest accrued while you’re in school and during repayment, which begins after the six-month grace period.

How Do Student Loans Work?

Whether you are working with a private or federal lender, student loans are essentially money borrowed to help pay for school. As a student, you’d seek money from a lender to pay your tuition. This money will be sent to your school to cover costs. Over time, you will need to pay back the money you borrowed, and with interest. Interest is a percentage of the total loan tacked onto payments, allowing the lender to cover their costs and make money.

How Do Federal Student Loans Work?

Once you’ve submitted your Free Application for Federal Student Aid (FAFSA), your college or university will send you a financial aid offer that will also include any federal student loans for which you may be eligible. This can include grants, scholarships, work-study opportunities, and subsidized and unsubsidized loans. Reach out to the financial aid office at your school to learn more about your loans and how to claim them — but know that you are not required to take the loans in your school packages. You can always research other options that may be cheaper for you or your parents.

How Do Private Student Loans Work?

Private loans can be valuable tools in helping students and families bridge the gap between their financial aid and the cost of attendance at their school. Private student loans are based on the cost of attendance at your school, minus any other financial aid (including any federal student loans you may have received). Given the federal loan limits, many students find that they need to supplement with private loans to cover the full cost of college. You will need to apply for each student loan individually through the provider.

There are many private student loans out there, and not all private student loans are created equal. For example, the NC Assist Loan offers competitive fixed rates, and we never charge fees. We even beat some federal loans when you compare our rates. It’s crucial that you carefully do your research to find the loan that works best for you and your family.

FAQs About Student Loans

Do You Have to Pay Back Student Loans?

Yes. Just like any type of loan, like a car loan or a home loan, a student loan must be paid back. Defaulting on a loan can negatively impact your credit history and make it harder for you to get other loans in the future. Scholarships and grants do not have to be paid back.

How Is Interest Calculated on Student Loans?

Interest begins to accrue on the day the loan is disbursed to you. Interest accrues daily at the agreed-upon interest rate and is added to the principal balance. Use our student loan calculators to estimate what your monthly payments could be based on your borrowing needs.

Apply for Your NC Assist Loan to Bridge the Gap for College

Don’t stress when it comes to student loans. The NC Assist student loan is provided by College Foundation, your North Carolina non-profit lender committed to the dream of college for everyone. With competitive fixed rates and no fees, it’s no wonder why so many people use NC Assist as their private student loan option when bridging the gap to pay for school.

Apply for student loans with NC Assist now and reach your dreams with ease.

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