The Nuts and Bolts of a Student Loan
So, you want to go to college or graduate school? Well, it is going to cost you. Don't worry, you can take out a student loan or loans like millions of others. Here is how the nuts and bolts of a student loan work.
First things first. Not all student loans work exactly alike. As a result, this is a general summary. If yours works a bit differently, don’t be surprised. Make sure you understand what you are getting into and the obligations you are undertaking. Then cash the check, forget everything and enjoy life. Just kidding.
The average student loan is simply an application away. As a student, you may think the application is long and complex. It really is not compared to most everything else you will see in life. Why? Well, you have almost no credit history and not much to report on the employment history front. It is a pretty quick evaluation.
What most loan applications are designed to do is find out about your PARENTS! The goal is to get them to guarantee the loan so the lender has someone to come after on the offhand chance that you decide to become an artist instead of a doctor. Yes, shocking.
Once you have been approved, the student loan lender will do a couple of different things. If you are going to undergraduate school, to wit, basic college, the lender will parcel out money in small amounts or pay it direct to the college and so on. The basic theme is trust. The lender doesn’t trust you with its money, so it is going to keep an eye on you.
This attitude completely contrasts with graduate school. If you are going to be the hen that lays the golden egg [doctor, lawyer], lenders will throw money at you. The average doctor or lawyer will graduate with well over $100,000 in student loan debt. Despite this, lenders will then give them more loans so they can study for their licensing exams, intern, take trips, drink heavily, etc.
Okay, what happens once the money is distributed? Well, you go to school. The loan goes into a default status known as forbearance. This means the balance grows because of the interest rate, but you don’t have to make payments. Yes, your $10,000 loan taken in your first year of school will have a balance of $13,000 or so when you graduate. Welcome to the world of finance.
Upon graduation, you’ll have to start making payments on the loans you took out. Ah, but what if you don’t graduate? Sorry, still have to make payments. You can consolidate your loans to stretch them out over a longer time and reduce the monthly payments, but it just lengthens the time you are paying.
Ultimately, student loans make higher education possible for millions who otherwise would be unable to pay for it. The growing debt load can be a bit nerve wracking, but it is just part of the process for most students.
