How does a student loan work?

Financing higher education is a major financial challenge for many students and their families. Tuition, housing and other university costs are often very high, and it is not always possible to cover them without external support.

Student loans then seem to be a valuable solution to finance these necessary expenses.

What is a student loan?

A student loan is a consumer loan designed specifically to help students cover their educational expenses. It allows students to fund things like tuition, books, housing and other day-to-day expenses. This type of loan is essential to access higher education for those who cannot afford to finance their studies through other means.

Types of Student Loans

There are several types of student loans, each with its own unique features:

1. State Guaranteed Loans : These loans are backed by the government, often offering lower interest rates and flexible repayment terms thanks to the state guarantee.
2. Bank Loans : Offered by financial institutions, these loans can vary in terms of interest rates and terms depending on the profile of the borrower. They usually require an assessment of the applicant’s credit.
3. Personal Loans : These loans are granted without requiring special guarantees, offering more flexibility in the use of funds. However, they may have higher interest rates.

Eligibility criteria

The criteria for obtaining a student loan vary depending on the type of loan and the lending institution, but there are usually several general conditions:

• Age : Applicants must often be under the age of 28 at the time of application.
• Registration in Institution : Enrollment in a recognized higher education institution is required.
• Nationality : Certain restrictions may apply depending on the nationality of the applicant, especially for loans with a state guarantee.
• Refund Ability : Sufficient repayment capacity must be demonstrated, based on current or expected future income.

The amount and fees associated with the student loan

The size of the student loan depends on the student’s needs, including:

• Teaching : Cover registration fees and other mandatory costs.
• Books and teaching materials : Finance the purchase of necessary textbooks and equipment.
• Housing and Other Expenses : Includes rent and other current living expenses.
• Interest rate : Rates can be fixed or variable, affecting the total cost of the loan.
• File fees : Administrative costs for processing the request.
• Declarations : Although optional, insurance covers risks such as death or disability.

Student loan application process

Before submitting an application, certain preparatory steps are required:

• Necessary documents : Provide school certificate, proof of income or parents’ income, and other supporting documents.
• Assessment of repayment capacity : Lenders assess the applicant’s ability to repay the loan based on current and projected income.
• Lender’s choice : Compare the offers available and choose the institution that offers the best conditions.
• Filling out the form : Provide all required information and submit the application form.
• Withdrawal period : The period in which the borrower can cancel the loan without additional costs, usually 14 days.
• Delayed treatment : Time required for the loan institution to process and approve the application.

Choosing the right bank for a student loan

The choice of bank is essential to benefit from favorable conditions. Here are some criteria to consider:

• Interest rate : Compare the rates offered to get the most advantageous one.
• File fees : Check the administration costs and choose the lowest.
• Optional Insurance : Assess whether the insurance offered is necessary according to your situation.

Refund rules

• Time of grace : Some loans offer a grace period after graduation where no payments are required.
• Commencement of Refunds : Often, repayment begins a few months after the end of studies.
• No penalty : Check if the loan allows early repayment without additional costs.
• Flexibility : Some loans offer deferred payment options if there are temporary financial difficulties.

Advantages and Disadvantages of Student Loans

Benefits

• Favorable interest rates : Often lower than for other types of credit.
• Government Support : Some loans benefit from state support.
• Time of grace : Delaying the start of repayments until after graduation provides a smoother transition.

Disadvantages

• Increased Debt : Can increase personal debt levels.
• High total cost : Accumulated interest can increase the total cost of the loan.
• Post Audit Financial Limitations : Monthly repayment can limit savings or investment ability.
• Impact on Credit : Delinquencies can damage your credit history.