Why Student Loans Are A Whole Different Beast Compared To Other Debts

Why Student Loans Are a Whole Different Beast Compared to Other Debts

Student loans can become a big headache, The US alone has student loan debt of over $1.7 trillion and in India too, the trend of taking loans for college fees is increasing.

These loans are completely different from credit card or car loans, and it is important to understand the reason for this. The problem is that the rules, repayment and risks of student loans are different, and making the wrong decision can create problems in the future.

But don’t worry,

We will tell you why student loans are so unique, what are their advantages and disadvantages and how to handle them. With a little understanding you can keep your finances on the right track.

So let’s see step-by-step what is the matter of this student loan and why it cannot be compared with other debts.

How Are Student Loans Different From Other Loans?

The funda of student loans is totally different. First of all, these are unsecured loans meaning you do not have to keep any property or car as collateral for the guarantee, which is there in a house or car loan.

But this does not mean that this is a small debt, In the US, there are federal loans which are given by the government, and private loans which are obtained from banks or companies.

The interest on federal loans is fixed, and that of private loans can be fixed or variable. The biggest thing It is almost impossible to get student loans forgiven even in bankruptcy, whereas credit card or medical debt can be forgiven.

So think, if you are not able to pay your credit card bill, the matter may be over with a little penalty. But student loan? it will follow you throughout your life.

That is why it is important to think carefully before taking it, Do you think that taking student loan is worth it? Or should we try other options as well.

What Makes Student Loans Special?

So, there is one more big difference with student loans their repayment style, In most loans, the EMI starts as soon as you borrow money. But it is not like this in student loans.

In federal loans, repayment does not start until you finish college, This deferment option is very cool, especially when you are still jobless. And sun, federal loans also have income-driven repayment plans.

Meaning if your salary is less then EMI will also be less, There is no such scenario in credit card or personal loan. Plus, there are some forgiveness programs in federal loans as well, like Public Service Loan Forgiveness in which you can get your loan waived by doing work.

There is no such in private loans. So if you’re thinking of taking a loan check out federal options first. But remember interest rates on private loans can sometimes be very high, Do you think this flexibility makes student loans better.

Student loans VS Credit Card Debt, Which Is Worse?

This is a big question Which is more toxic among student loans and credit card debt? Look credit cards have very high interest rates like 15-25%, while federal student loans have around 4-7%. Meaning, credit card debt can increase quickly.

But student loans have one problem they cannot be forgiven in bankruptcy while credit card debt can be forgiven. Repayment plans in student loans are flexible like income-driven options but there is nothing like that in credit cards.

If you are confused between the two, then think: One can get a good job after completing studies with the help of student loan but credit card debt often comes from shopping or unnecessary spending.

People on Reddit say that student loans are better in the long term if you follow the right repayment plan, What do you think which debt is more risky?

What Are Private Student Loans?

Private student loans are those given by banks, credit unions or online lenders not the government. These are quite different from federal loans,

The interest rates here can be fixed or variable and most of the time it depends on your credit score or income as to whether you will get the loan or not.

Compared to federal loans, private loans have less protection meaning, if you are unable to repay more strict action can be taken. Some private loans give the money directly to you, not to the college, which is quite convenient if you have to spend extra.

But keep in mind, their interest rates can be high. If you are considering a private loan, do some research compare loans from companies like Sallie Mae or Discover, What do you say is the risk of taking a private loan worth it or is federal better?

What Happens If I Don’t Repay My Student Loan?

Not repaying a student loan is a very risky move, If it is a federal loan the government can deduct money directly from your salary (wage garnishment) or withhold tax refund.

Your credit score will also be ruined which will create problems when you get a home or car loan in future, The scenario is same with private loans lenders can file a case in court and collection fees will be added.

Apart from this, defaulting on a student loan can complicate your life a lot, Think, if you apply for a good job and a default is detected in the background check, it could spoil your impression.

So, if there is a problem in repayment, then after talking to the lender in advance some plans can be adjusted, What do you think what is the best way to avoid default? Do you want to tell me the experience of any friend.

Advantages And Disadvantages Of Student Loans

Let’s talk about something positive, What are the benefits of student loans? The biggest one is that you can pursue your dream degree, which can get you a good job in the future.

Options like deferment and forgiveness are also available in federal loans, But there are disadvantages too, These loans sometimes go on for 10-20 years, and the interest on private loans is a burden on the heart.

One more thing it is difficult to get student loans forgiven in bankruptcy as well, so this debt will make you run in a long race. Tip?

Always give priority to federal loans, and if you have to take a private loan then compare interest rates. Think, will you be able to balance the benefits and disadvantages of the loan? Or will you manage to get a scholarship or a part-time job?

Opinion:

It is important to handle student loans smartly, Try federal loans first as their plans are flexible. Join an income-driven repayment plan so that the EMI is according to your salary.

If you have a little extra cash, make extra payment on the principal this will reduce the interest. You can also think of refinancing private loans but there is a risk of losing federal benefits, so be careful.

Most importantly learn financial literacy, Decide after thinking carefully how much to borrow. Make a budget and avoid unnecessary expenses. What do you think is there any other tip that can help students.

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