Brief overview: Cheap student loan!
- Short-term and small loans: It is rather unlikely that students will receive a large loan amount or only possible in individual cases. With small or short-term loans of up to $ 1,000, for example, the chances are somewhat greater.
- Co-applicant or guarantor: If the student’s creditworthiness alone is not sufficient, a second applicant or a guarantor, for example the student’s parents, may be included in the loan agreement.
- Study funding: In addition to a normal loan, funding programs such as German State Funding or a Best Bank loan may also be considered. This must be checked in individual cases.
A loan for students is possible in different ways!
Students often have to make do with a particularly tight salary. Because the study leaves little time to earn something on the side. But even as a student, you have wishes or simply need money. In such cases a student loan is required.
Under certain conditions, students can also get a loan. A student loan is not an easy task because students do not usually meet the usual credit requirements. Banks typically require different types of collateral to avoid default. A student usually cannot fulfill these guarantees, or only partially. But there are still ways to get a loan. It also depends on the purpose. Below is an overview.
Often the best way – sponsored study finance
In many cases, it would not be possible to study without outside support. Not every student has parents who can provide financial support for the study project. For this reason, students are funded with various measures. Funding according to the Federal Education Promotion Act – German State Funding for short – is of central importance. There are also a number of other funding measures.
For promotional loans, the Kreditanstalt für Wiederaufbau (Best Bank) is primarily responsible at federal level. There is also extensive funding through grants from various foundations and institutions. Funded study funding is provided both through grants (especially for scholarships) and loans.
Promotion better than credit!
Funding is always better than a loan, because it is de facto “free money” which does not have to be paid back, only in part or at moderate conditions.
But not every student has access to a grant. In this case, a loan to finance your studies may be the method of choice.
Loans for student finance
1. German State Funding
German State Funding funding for students is a combination of grants and interest-free loans. In order to be eligible for German State Funding at all, certain requirements must be met. Income and assets of students, but especially student parents, must not exceed certain limits. Even if this is not the case, the German State Funding entitlement can be reduced.
The maximum German State Funding funding for students (as of 2018) is 735 USD per month and is granted at the longest until the end of the standard period of study – half as a grant, the other half as a government loan. Repayment of the loan portion begins five years after the maximum funding period (= standard period of study) and is paid in quarterly installments of at least 315 USD.
In total, a maximum of 10,000 USD must be repaid. If you make early repayments, part of the loan debt is waived. The lack of interest, the limitation of the repayment amount and the possibility of partial waiver make the German State Funding state loan unrivaled. There is no other student loan that can offer that.
2. German State Funding bank loan
The German State Funding bank loan is aimed at students who have exceeded the standard period of study and for whom the German State Funding relationship ends regularly. The loan offers monthly payments of up to 12 months for (residual) study finance. The amount is determined by the responsible German State Funding office according to the usual German State Funding criteria.
The repayment then only begins after a waiting period of 18 months and takes place in monthly installments of at least 105 USD. The repayment phase lasts up to 22 years. The German State Funding bank loan is paid out by Best Bank.
3. Best Bank student loan
The Best Bank student loan offers monthly payments of up to 14 semesters in a range from USD 100 to USD 650 for student finance. The maximum possible loan amount thus reaches 54,600 USD. However, a one-time payment is not possible. The repayment is then made in monthly installments over a period of ten years.
A first or second degree is financed. Postgraduate or doctoral programs can be funded for up to 6 semesters. The Best Bank student loan is available to students between the ages of 18 and 44. Collateral does not have to be provided. There are also no income or asset restrictions as with the German State Funding.
4. Best Bank education loan
The Best Bank education loan supports a wide range of training and further education measures. This also includes student finance. The program is designed for financial support in the final phase of a professional qualification. It provides monthly payments of USD 100, 200 or 300 for up to two years.
The maximum possible loan amount is therefore 7,200 USD. Students must not be older than 35 years, have not studied for more than 12 semesters, must have successfully passed an intermediate examination or have completed a second or postgraduate course.
Repayment begins four years after the first payment in monthly installments of 120 USD. Collateral is not required. The German State Funding criteria also play no role here.
Study fund – student loan as an investment
Study funds offer an innovative form of student finance. They combine the idea of mutual funds with student loans. Private and institutional investors provide the study fund with money that is “invested” in promising students.
They receive study funding on a credit basis – usually with accompanying support, coaching and training – and pay the money back after they have started their careers over a certain period of time.
Instead of a fixed interest rate, a kind of “profit sharing” of future income is agreed here. Study funds are a private business model with a return target. Not every student and not every course of study is predestined for this form of funding. At the moment, study funds are more of a niche for student loans.
Loans for financial crises, wishes and purchases
1. Overdraft facility
It is also common for students today to have a checking account. In most cases, this is done on a credit basis, which means that overdrafts are not possible. But there are institutes for which a student is a good customer of tomorrow, who you want to lure with attractive offers. In spite of a lack of working income, an overdraft facility is sometimes granted.
As a rule, according to the financial possibilities, it is about disposition lines of a few hundred USD, a maximum of 1,000 USD. In some cases, a “preferential interest rate” is even offered. The overdraft facility is still expensive. In order to fulfill wishes and to finance purchases, it is hardly suitable because of the small amounts. At most, this can fill a short-term financial gap – it is better if there is another solution.
2. Credit card
The same applies to credit cards for the overdraft facility. Cards that are offered to students mostly work on a prepaid basis. This means that the card must first be topped up with credit before it can be used. (Very) occasionally, students can already get a “real” credit card, even with monthly billing, which corresponds to a free loan over a period of up to one month.
The credit-based credit limit, like the overdraft facility for students, is of a maximum of USD 1,000. Such a credit card may allow financial flexibility for short-term stays abroad, but it is certainly not a “financing solution”.
3. Short-term or small loans
Financial bridging also enables so-called short-term or small loans, which are offered by special service providers on the Internet. This is about loans for a few weeks and for very small amounts – starting at 100 USD. The requirements are less stringent than for normal loans. A (reasonably) clean Credit Bureau and regular income are also required for such loans.
For the providers, the German State Funding reference is sufficient as a regular income for students. Such a loan is therefore quite possible for students. “Big leaps” cannot be made with it, after a short time the repayment is announced. Such a loan may help out of an acute financial crisis. But he doesn’t solve any financial needs.
4. Acquisition or installment loans
Students only receive the classic installment loan for purchases if they can prove that the loan can also be repaid properly. That should very often be difficult “on your own”.
Borrowing should also only be considered when it comes to making a really urgent purchase. This can be, for example, computer equipment for studying, a mobile stand or furniture for the student booth. Installment loans are available from around 1,000 USD, large loan amounts are not possible for students anyway.
Creditworthiness can be significantly improved if a parent with a good credit rating acts as a co-applicant for the loan and acts as a second borrower. This gives the bank more security. A parent guarantee has a similar effect.
What students should consider when borrowing
You have to be able to afford a loan. Therefore, the motto for students should be: as little credit as possible, as much as necessary! Because the blessing of money in connection with the loan disbursement is offset by future payment obligations that limit the already tight budget for living expenses.
This is relatively unproblematic when it comes to student loans. Here, the repayment is structured in such a way that it usually only starts after your studies, when a profession ensures regular income.
This is not the case with other loans. Here it is highly recommended that, if you intend to take out a loan, you should also consider whether and how the repayment can be presented.
Credit only if really necessary!
A student loan should only be taken out if it is really urgent and important. The credit for pure purchases or consumption should be avoided.
Why Compare Loan Offers
When taking out loans, the conditions of possible loan alternatives should always be compared in order to find the cheapest offer. A good benchmark is the effective annual interest rate, which must always be stated in loan offers. In addition to interest, it also includes other credit costs.