While everybody would like to go to college debt-free, student loans are unfortunately a necessary evil in today’s educational world. While student loan debt is a common consequence of attending college, it doesn’t have to be overwhelming. You can make the process of taking out a student loan to pay for school less painful by educating yourself about the different types of student loans available.
Student Loan Basics
Student loans can be generally broken into the categories of federal and private student loans. Private student loans are loans students borrow from lending agencies, with credit requirements, interest rates and repayment schedules set by the lenders, rather than by the Department of Education. Federal loans, on the other hand, are available for both students and parents, and have uniform rates and requirements. The most common federal loans are Stafford Loans, Perkins Loans, and PLUS Loans.
Here's a quick overview of Direct Subsidized Loans:
- - Direct Subsidized Loans are available to undergraduate students with financial need.
- - Your school determines the amount you can borrow, and the amount may not exceed your financial need.
- - The U.S. Department of Education pays the interest on a Direct Subsidized Loan
Here's a quick overview of Direct Unsubsidized Loans:
- - Direct Unsubsidized Loans are available to undergraduate and graduate students; there is no requirement to demonstrate financial need.
- - Your school determines the amount you can borrow based on your cost of attendance and other financial aid you receive.
- - You are responsible for paying the interest on a Direct Unsubsidized Loan during all periods.
- - If you choose not to pay the interest while you are in school and during grace periods and deferment orforbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the principal amount of your loan).
Here's a quick overview of Federal Perkins Loans:
- - Available to undergraduate, graduate, and professional students with exceptional financial need.
- - Interest rate for this loan is 5%.
- - Not all schools participate in the Federal Perkins Loan Program. You should check with your school's financial aid office to see if your school participates.
- - Your school is the lender; you will make your payments to the school that made your loan or your school's loan servicer.
- - Funds depend on your financial need and the availability of funds at your college.
Here's a quick overview of Direct PLUS Loans:
- - The U.S. Department of Education is the lender.
- - The borrower must not have an adverse credit history.
- - The maximum loan amount is the student's cost of attendance (determined by the school) minus any other financial aid received.
Here's a quick overview of Private Student Loans:
- - Different lenders may have different requirements, rates, and repayment schedules.
- - Private student loan applications are typically available online, through your lender of choice, or from your school’s financial aid office.
Last Edited: May 2015
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