Since 1963, the cost of college tuition has increased more than 747% — a fact that makes it daunting to pay such costs entirely out of pocket from personal savings. Faced with the steep cost of higher education, many prospective students turn to student loans.
The latest data from the National Center for Education Statistics (NCES) found that about 30% of students borrowed federal loans for undergraduate school. NCES also reported that those who obtained federal student loans borrowed an average of $6,598.
Student loans can be a useful way to finance your degree. But before taking on thousands of dollars in debt, it’s important to understand what student loans are and how they work.
What are student loans?
Student loans are a financial aid option designed to help cover the costs of higher education expenses. These loans are provided in a lump-sum and are repaid in installments. The debt must be paid back over an agreed timeline, plus interest (and fees, if applicable).
There are two main types of student loans: federal student loans and private student loans. Understanding the difference between these two types of loans is critical as each has its own pros and cons as well…
