What is a Student Loan?

Student loans help students receive financing so that they can achieve their education goals and ideally attain degrees and certifications. Students loans tend to be amortized over the long term. They can be quite costs and if you can afford to pay them off early you really should.

Are There Alternatives To Student Loans?

There are not many alternative to student loans in the marketplace currently. However, there are now equity based repayment loans for education in which borrowers can opt to repay student loans via equity on their income. This is a unique approach to paying down the loan as opposed to a traditional student loan which requires payments come due after the student finishes their education.

How Do Student Loans Impact Credit?

Student loans can tend to be a net negative to credit worthiness since these loans are typically lean more on the "bad debt" side, since they are unsecured.

Why the General Dislike of Student Loans?

Student loan debt in particular is usually amortized over 10-20+ years and just thinking about being on the hook for education loans you took out during your college years can really be demoralizing for consumers. Many consumers can often feel a sense of deep-seated regret about how effectively or ineffectively they've utilized those dollars in their younger years. If you couple this with the long payback period of these loans, many consumers really just feel like they have a limiting ceiling right overhead that prevents them from saving, investing and doing all the normal things they expected they would be able to do.

Is There a Way to Get Out of Student Loans?

Unless there is widespread government forgiveness for qualifying federal loans, there is no current way to get out of paying off federal student loans. If your loans are federal issued, ultimately, you signed up for them with the intention of paying them off. Currently, there is very little companies can do to settle federal student loans.

What's The Difference Between Federal Loans and Private Loans?

Besides interest rates and applicable terms, the biggest difference between federal student loans and private student loans is that federal loans are backed by the government and are typically not dependent on your credit worthiness (except Direct PLUS loans for parents, etc.). Private student loans on the other hand are based on credit and if you have little to no credit history, this typically means you will require a cosigner to get reasonable terms. Federal student loans will also typically have more favorable terms, meaning that the cost of borrowing will typically be cheaper with federal loan options.

Although defaulting on private student loans or federal student loans are not ideal in either case as this will have a detrimental impact to your credit, there are significant differences between the two. First private student loans are considered to be in default much sooner than federal loans (typically after 90 days of missed payments). Federal loans on the other hand usually have a 270-day non-payment period, after which you are considered to have defaulted.

If you default on a federal debt it is extremely likely to impact your eligibility for receiving federal loans in the future. Besides, the negative impact to your credit and your eligibility to receive extensions of credit in the future, defaulting on these loans can make it harder to get a cell phone plan, get approved to rent, etc.

Tips for Student Loans

Tip #1: It is extremely important to only borrow what you need—especially in College! Doing so will just leave you with more compounding interest to pay down the line. Moreover, you do not want to have student loans hanging over your head for decades, as many Americans currently do.

Tip #2: Many lenders currently offer an ISA (income share agreement). If you feel that you are heading into an industry in which you will not generate a lot of income this may be a viable option for you. In this case, the repayment of the student loan is dependent on your income and the lender essentially has equity on any of your future earned income.

Tip #3: If your score is too low to qualify for private loans, you can look into lenders that will offer loans based on your grades (yes this does exist!). These lenders will actually determine how much you can receive according to academic history. Always be sure to check for origination fees, application fees, repayment terms, in addition to APRs when looking into any of these loan options.