Whether you're looking to further your college education, start a business or do both, you will need a decent amount of money in savings.
Whether you're looking to further your college education, start a business or do both, you will need a decent amount of money in savings.
Many young people don't have the funds to pay for college, so they turn to student loans. A student loan covers the cost of tuition, fees, and living expenses while the student is in a college or university. Before applying for a student loan, it's a good idea to think carefully about what you want to study.
While it's important to study something you are passionate about, you must also consider the job prospects of your chosen field of study. Research potential jobs you can get with your qualifications and the starting salary. There is little point in borrowing money that will incur interest over time to study something that you can't get a job in, as, without a job, you will struggle to repay the loan.
On the other hand, you might want to start a side hustle while in college to help you meet your expenses. It will also require funding, and if you have a great business idea that you are confident will take off, there are many loans on the internet that can help you kickstart your vision.
Let's look at the various student loans and personal loans that you may consider.
Student Loans
Student loans can be split into two main types: federal and private, and they can be further broken down into various options.
Federal Student Loans
It's the first option to consider when applying for student loans. These loans are backed by the government and usually have favorable terms like a fixed interest rate and flexibility to repay the loan. There are different types of federal loans that you may apply for, depending on your situation.
- Subsidized loans
Students from disadvantaged backgrounds and in the most financial need may apply for a subsidized student loan. To be eligible for this loan, you will have to demonstrate that you need financial aid. Since the loan is subsidized, the government will pay the interest while you're in school or during your grace period.
- Unsubsidized loans
Anyone can apply for an unsubsidized federal loan to finance their undergraduate or graduate courses. Students applying for this loan don't need to show they are in financial need. Interest on the loan starts accruing immediately, and the borrower is responsible for paying back the loan, interest, and fees.
- Plus loans
Students and parents may apply for a Plus loan to fund graduate studies. Unlike subsidized and unsubsidized loans, lenders will do a credit check to approve a Plus loan, and students or their parents with a bad credit score may not be eligible for this loan.
These loans also have a higher interest rate and fees than the other federal loan types, and the interest begins accruing while the student is still in school.
If a student doesn't qualify for this loan because they have a poor credit score, they may be able to secure one with a co-signer.
Private Student Loans
The interest rate and terms for private student loans are typically less favorable than federal loans. Financial experts advise students to exhaust all other options for funding their studies, like scholarships, bursaries, and federal loans, before considering applying for a private student loan.
There are many different types of private student loans, and the terms of the loan depend on several factors like the lender and your credit score. Lenders can be banks, online lenders, and credit unions.
Repaying a Student Loan
The terms of repayment vary depending on the lender. If you've taken a federal loan, you must repay it when you've graduated, left school, or dropped to half-time enrollment. Subsidized and unsubsidized federal loans give you a six-month grace period.
You can begin repaying Plus loans immediately after they've been paid out, but if you're unable to, the loan goes into deferment when you are still in school. You will also have a six-month grace period after you've graduated or left school.
Private student loans have different payment terms and are less flexible. Some require you to make payments towards the loan while you're still studying. Others start accruing interest when you're in school, but you only need to make repayments after you've graduated. Before accepting a private student loan, review the terms carefully to ensure you are comfortable with the t&c.
How to Fund Your Side Hustle
Starting a business when you're young, even if you're a student, can be advantageous because it gives you a head start and time to make mistakes, learn and grow. Funding a new venture may be challenging since business loans are typically targeted at financially sound and established businesses.
Still, you don't have to shelve your idea until you've saved a significant amount since timing is everything when starting a business. The key is to start your business small and grow. It will minimize your risk.
If you need funding, consider the following:
Personal Loan
If you have a good credit score, you can apply for a personal loan from a bank or traditional lender that typically provides loans with reasonable terms and low-interest rates. There are two main types, namely secured and unsecured.
Secured loans are a more significant risk for the borrower since you will need to provide collateral. However, the interest rates will be lower.
Unsecured loans are risky for the lender because the borrower does not have to provide collateral, but the interest rates are higher.
Co-signed Loan
It's common for young adults to have poor credit scores through no fault of their own. It's because if you've never borrowed money, your credit score will be low since a positive payment history contributes to a high credit score.
If you're not eligible for a personal loan based on your credit score, one option is to apply for a co-signed loan. This loan requires someone with good credit to sign for the loan with you. You will likely secure a loan with a low-interest rate and reasonable terms based on their high credit rating.
Your co-signer won't have access to the loan, but they will be responsible for repaying it if you default on it.
References
- Hermoney: Student Loan Scams in 2022: They’re Ramping Up and They’re Incredibly Clever
- Nerdwallet: 6 Things to Know About Student Loans
- cnbc: Here’s What You Need to Know About Your Student Loans - Before its’s too Late