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Student Loans

Going to college debt free is everyone's ideal scenario, but if you have used all scholarships, grants, and any other financial aid options out there, you may still require some money to cover the remaining cost of college. If you need to borrow money for college, you can make the process easier by learning about the different types of student loans available.

Student Loan Basics

A student loan is money you borrow that must be repaid with interest. Student loans are broken into two categories: federal and private. Federal loans include the Stafford Loan, Perkins Loan and the PLUS Loan. These loans are made by the federal government and typically have lower interest rates and more flexible repayment options. The U.S Department of Education offers two federal student loan programs: The William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Perkins Loan Program. There are four types of Direct Loans available: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

Private student loans are borrowed from individual lending agencies, with credit requirements, interest rates, terms, and repayment schedules set by the lenders.

Here's a quick overview of Direct Subsidized Loans:

  • Direct Subsidized Loans are available to undergraduate students with financial need.
  • Colleges determine the amount you can borrow.
  • The amount borrowed 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.
  • Colleges determine the amount you can borrow based on your cost of attendance and the other financial aid you receive.
  • You are responsible for making interest payments during all periods.
  • If you do not pay interest during these periods your interest will accumulate and be added to the principal amount of your loan.

Here's a quick overview of Federal Perkins Loans:

  • Federal Perkins Loans are available to undergraduate, graduate, and professional students with exceptional financial need.
  • The interest rate for this loan is 5%.
  • Not all schools participate in the Federal Perkins Loan Program. Check with your school's financial aid office to see if your school participates.
  • Your school is the lender. Payments go to your school, or your school's loan servicer.
  • Funds depend on financial need and availability.

Here's a quick overview of Direct PLUS Loans:

  • Direct PLUS Loans are issued by The U.S. Department of Education.
  • The borrower cannot have an adverse credit history.
  • The maximum loan amount is calculated by the cost of attendance minus other financial aid received.

Here's a quick overview of Private Student Loans:

  • Private Student Loans are offered by different private lenders.
  • Different lenders have different credit requirements, rates, and repayment schedules.
  • Applications are typically available online, through your lender, or from your school's financial aid office.
  • Many private student loans require payments while you are still in school.
  • You are responsible for making interest payments on private student loans. Some variable interest rates are greater than 18%.
  • Private student loans cannot be consolidated into a Direct Consolidation Loan.
  • You may need a cosigner.

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Last Reviewed: February 2020