Student loans serve as a financial vehicle for students who do not otherwise possess the financial means to pay for college. Just like any other kind of loan, student loans are a borrowed sum of money that must be paid back to the lender plus interest (the typical student loan interest rate is 2 to 5 percent annually). Student loans are personally guaranteed by the student's (borrower's) credit, and the borrower is responsible for repayment once he/she is no longer enrolled in school.
Student loans are in place to cover the various types of expenses associated with college attendance. This includes: tuition, housing, books, lab fees, computers and cost of living. Student loans can be private (from a bank) or federal (guaranteed by federal government). Typically, federal student loans are only eligible for the cost of tuition (they do not allow a student to borrow for rent and miscellaneous expenses). Private loans can be secured for all costs associated with college (rent, books, food, etc.).
Federal loans are backed by the U.S. government and are not a direct reflection of the student's (borrower's) credit score (credit worthiness). Essentially, any college-bound student is entitled to federal loans. Private loans, on the other hand, are available based on the student's (borrower's) credit score. The amount someone is eligible to borrow depends on his or her financial history and debt levels.
Often, student loans are the first instance of credit a person encounters. It is important for a student to remember that this money will need to be paid back. Student's should be cognizant of interest rates and terms for repayment. This will dramatically effect the life cost of the loan. Students need to always remember that the loans will follow them for years, and they should be treated as such.
Student loans provide financial flexibility to their borrowers. Without student loans, many students would have to work their way through college and could miss out on many experiences. Student loans enable these students to focus on schooling and worry about costs at a later time (often when they are employed as a college graduate). Student loans benefit colleges because they increase the applicant pool from just students who have the financial capacity to afford the school.