Student Loans

What are the Benefits of Taking Out Student Loans?

Taking out student loans to help finance your higher education helps you:

• Afford a cost-prohibitive education: Higher education can be very expensive, and student loans make it possible for many individuals to attend college or university who otherwise couldn't afford it.
• Access funding no matter your credit history: Federal student loans, in particular, are often available to students regardless of their credit history, as eligibility is typically based on financial need and enrollment status. This is a significant advantage for young people just starting out.
• Receive lower interest rates than other financing options: Compared to options like credit cards or some personal loans, student loans, especially federal ones, often have more favorable interest rates, which can save borrowers a substantial amount over the life ofthe loan.

What are the Federal Student Loans?

Federal Student Loans are loans where the student borrows money from the government.

• Federal student loans often have flexible repayment options: The U.S. Department of Education offers various repayment plans for federal student loans, including income-driven plans that adjust your monthly payment based on your income and family size. There are alsooptions for deferment and forbearance in certain situations.
• Some federal loan programs offer loan forgiveness for public service: Programs like Public Service Loan Forgiveness (PSLF) can discharge the remaining balance on federal student loans after a borrower has worked for a qualifying employer for a certain period and made qualifying payments. Student loans that are forgiven under PLSF are Federal Tax free. While  borrowers don’t pay taxes to the federal government on those loans they might still have to pay state and local taxes.
• Interest paid may be tax deductible: In some cases, the interest you pay on student loans may be tax deductible, which can help reduce your overall tax burden.

What are the Downsides of Taking Out Student Loans?

• Default can lead to very serious consequences: Failing to repay your student loans can have severe repercussions, including damage to your credit score, wage garnishment, seizure of assets, and difficulty obtaining other credit in the future.
• Federal loans have annual and cumulative borrowing limits: There are limits on how much you can borrow each year and over the course of your education through federal student loan programs. If your educational costs exceed these limits, you may need to explore other financing options.

What are Personal Loans? And How Do They Compare To Student Loans?

Some facts about personal loans and how they are different from student loans:

• Personal loans can be used for a variety of purposes, not just education. This is a key difference. Normal loans offer flexibility in how you use the funds, whether it's for home renovations, medical expenses, consolidating debt, or other personal needs.
• Funds from personal loans are often deposited directly into the borrower's bank account. With a normal loan, the funds are typically disbursed directly to you, giving you immediate access to the money to use as you see fit.
• Personal loans usually only offer a fixed interest rate. While this can provide predictability in your monthly payments, it means you won't benefit from potential interest rate decreases in the future, as can sometimes happen with variable-rate loans (though fixedrates are common in student loans too).
• Some personal loans explicitly state they should not be used for post-secondary education or student loan debt. Lenders may have restrictions on how you can use the loan funds, and some prohibit using personal loans for educational expenses or to pay off existing student loans.

Conclusion

Student loans are unique loans that have unique benefits for financing education.

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