Student Loans

Student Loans

Read and Respond

Poll

I know everything there is to know about student loans.

• Strongly Agree

• Agree

• Muy Poquito

• Disagree

• Strongly Disagree

What must you do to qualify for student loans?

It can cost thousands of dollars a year to attend a school in your home state, and even more if you want to attend a school out-of-state. But don’t let the cost of college deter you from applying to the school or schools where you want to go.

Student loans let you borrow money to pay for your education. To qualify for student loans, you have to fill out a FAFSA, the Free Application for Federal Student Aid. This goes to the Office of Federal Student Aid, which is part of the Department of Higher Education. They distribute about $80 billion in student aid each year, much of which is in loans.

Multiple Choice

To qualify for student loans, you must...

• go college in your home state.

• fill out a FAFSA.

• apply directly to the school of your choice for financial aid.

• apply to a bank for a student loan.

When you take out a student loan, what is interest?

Of course, borrowing money by taking out a student loan (or loans) implies you’ll have to pay that money back. But you don’t have to pay until you graduate, and you don’t have to pay it back all at once. You can pay back a little each month until you’ve repaid your loan in full.

Keep in mind that borrowing money comes at a cost—literally. Lenders make money by charging you interest on the money you borrowed, which is called the principal. Interest is a fee that is added to the amount you owe, usually a percentage of the amount you borrowed. It will be added to your loan until you pay it off. When you take out a loan, lenders will give you an interest rate, so you’ll have a sense of how much you will eventually owe.

Multiple Choice

When you take out a student loan, what is interest?

• a one-time fee charged by lenders when you borrow money

• part of the tuition charged by colleges and universities

• a fee that is added to your principal until you pay your loan back

• a portion of the principal that lenders decide you don’t have to repay

What happens if you pay more than your minimum each month?

You don’t have to start paying back your student loans until you graduate from college. But once you do graduate, lenders will ask you to pay a minimum amount of money each month until you have paid back your entire loan. This is the minimum payment. But because interest will keep being added to your loan until you pay it off, you should pay more than the minimum if you can. This way, you’ll spend more money paying your actual debt (the principal) as opposed to paying extra money in interest. Remember: The sooner you can pay back your lenders, the less additional money you’ll spend.

Multiple Choice

What happens if you pay more than your minimum each month?

• You will pay more interest over time.

• You won’t have to repay the principal.

• Your lender will forgive the loan.

• You will repay the principal quicker.

Which of these is an effect of defaulting on a loan?

Default is the failure to repay a loan. If you’re repaying your loan monthly—as most people do—default officially occurs when you’ve fail to make a payment for 270 days (nine months). Financially, this is very damaging. It will hurt your credit score, and that could come back to haunt you in the future when you want to buy a car or rent an apartment. A credit score is a number that ranges from 300 to 850. Banks use it to evaluate how much they can trust a borrower to repay a loan. A high score means you have a history of paying bills in full and on time. The higher your score, the more banks will trust you. A low score could mean banks won’t want to lend you money. If you can find a bank to lend you money, it could come with a very high interest rate.

Multiple Choice

Which of these is an effect of defaulting on a loan?

• It is difficult to buy a car in the future.

• It is easy to get a loan with a good interest rate.

• The principal of a loan is cut in half.

• The interest on a loan goes to zero.

How is deferring your loan different than defaulting on it?

The future can be unpredictable. What happens if one day you simply don’t have the money to make your student loan payments? Don’t worry. You don’t have to go into default or end up financial ruin. Your options for dealing with student loan debt are just a phone call away. Talk to your lender, explain your situation and ask to defer your loan. Deferment allows you to stop repayments for a period of time without going into default or building up interest. There are a number of ways to qualify for a deferment, including being unemployed, being a current student or joining the military. You will still have to pay the full amount you owe, but you may be able to lower your monthly payments.

Multiple Choice

How is deferring your loan different than defaulting on it?

• When you defer your loan, you stop making payments for at least nine months. When you default, you stop making payments for a period of time with your lender’s permission.

• When you defer your loan, you stop making payments for a period of time with your lender’s permission. When you default, you stop making payments for at least nine months.

• When you defer your loan, you ruin your credit. When you default, you do not.

• When you default on your loan, you do not have to pay back the full amount you owe. When you defer your loan, you do.

Open Ended

What's one thing you are still unsure about or want to know more about in regards to student loans?