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Choice Home Warranty Review
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How do student loans work?

How do Student Loans Work?

Most college students will have to borrow one or more student loans before they graduate, because there aren’t enough government grants to cover all college costs. There are more than $100 billion in new student loans made each year and more than $1 trillion in student loan debt outstanding.

Given that most student loan debt is unavoidable, it is important for college students to understand how student loans work.

What is Student Loan?


What is a Student Loan?

A student loan is borrowed money used to pay for college costs.  It is repaid over time based on the lender's repayment terms. In addition to repaying the amount borrowed, most borrowers also have to pay a fee, called interest.


What is student loan interest?


What is Interest?

Interest is a fee charged for the use of someone else’s money. It is typically charged once a month based on the unpaid loan balance.Most new student loans have fixed interest rates, which do not change over the life of the loan. A variable interest rate will change periodically, such as every month, quarter or year.

who provides student loans?


Who Provides Student Loans

Student and parent loans come from private lenders, such as banks and other financial institutions, state governments and colleges. Generally, students should always borrow federal first, because federal student loans are cheaper, more available and have better repayment terms.

How much can you borrow on a student loan?


How Much Can You Borrow?

A loan limit specifies the maximum amount you can borrow. Some student loans allow you to borrow up to the full cost of college, reduced by the amount of the other student financial aid. Other student loans have lower fixed annual and cumulative loan limits.

Student loans may be good debt, because they are an investment in your future. But too much of a good thing can hurt you. So, borrow as little as you need, not as much as you can.