Student loan: what it is, how it works

Due to high tuition costs, more and more students are turning to student loans to achieve their dreams.

What is a student loan?

Student loans – or financing – are a program model that, as the name suggests, aims to help higher education students pay their college tuition fees.

Depending on the agreement made, the student may start paying off this loan after completing the course or may pay smaller monthly installments throughout the course.

This helps provide the student with a breathing space, allowing them to better plan financially to pay off this debt in the future.

How does student loan work?

Generally speaking, it works like this: The student signs a contract with the responsible institution, and after that, the institution is responsible for paying – whether partial or total – the undergraduate tuition fees.

As with other types of loans offered on the market, this amount must also be paid to the financial institution.

Interest rates and repayment terms also tend to vary from one loan model to another. Although it's still a debt, depending on the agreement reached with the institution, this makes the student's life much easier.

For example: in the case of full payment of monthly fees, the student will be 100% free from installments while attending college.

In cases of partial payment, the student also comes out ahead, as the amount they pay ends up being much lower than the original amount. This is certainly a huge help, given that undergraduate tuition fees can be quite a burden on students' pockets.

Points to consider when taking out a student loan

Despite the advantages mentioned in the previous topic, it's important to understand that this is still a debt you'll be assuming. Therefore, there are a few points to consider when opting for this loan.

Some of them are:

When and in how many installments you will need to start paying back the loan: this helps students better plan their finances, avoiding future surprises when it's time to pay.
What interest rates will be charged? Like any other loan, student loans also carry interest. Therefore, it's crucial to understand the rates that will be included in your contract.
How program renewals work: This varies from program to program, but generally, renewals must be completed every 6 months or annually.
Whether your chosen option requires a guarantor or not: This can also vary depending on the financing model you choose. While some contracts require a guarantor, others waive this requirement.
Only after you have all this information will you be ready to choose the best loan option.

How to get a student loan

Currently, the best-known student financing program is the Student Financing Fund, FIES.

The program, which has existed since the early 2000s, was created by the Ministry of Education (MEC) and emerged as a tool to facilitate access to university education for low-income young Brazilians.

How to apply for FIES

To enroll in the program and obtain the loan, students must meet certain requirements. One of them is meeting the program's gross monthly family income profile, which is up to three minimum wages per capita. Other factors required to enroll in the program include:

Have taken one of the Enem tests administered from 2010 onwards;
Have obtained a score equal to or higher than 450 points in the test;
Not having scored zero on the Enem essay.

Recently, the Student Financing Program (P-FIES) also came into force.

The basic difference is the income level required to participate, as you will see below.

In addition to the FIES, The P-FIES program recently emerged. It requires a per capita family income of 3 to 5 minimum wages.

For both programs, registration can be completed online. Within the designated application period, students must access the official website and fill out the requested information, including their date of birth, CPF (Individual Taxpayer Registry), information about family members living with them, and a socioeconomic questionnaire.

After this, the candidate must choose three course options from the available options. If the student is pre-approved, the next steps are: validating the information provided at the time of application with the college and signing the contract at the bank.

Other student loan options available

With the popularization of FIES, other options began to appear on the market to compete directly with FIES.

Nowadays, there are student loan options provided by banks, credit companies, and even directly by higher education institutions that offer these opportunities.

This variety of financing programs helps offer more term and payment options for students who want to pursue higher education but don't have the funds to make that investment at the moment.

Conclusion

It's no secret that higher education in Brazil is a costly investment. And, unfortunately, this isn't the reality for most students.

This type of student loan is a great option for students who, despite some financial limitations, don't want to give up on earning their dream college degree.

To do this, do thorough research on the student loan options available on the market before choosing the option that's best for you.