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.
Federal loans for student borrowers are the most widely available form of
federal student financial aid, and are what many people first think of when
they hear the term "student loans." This aid is available in two varieties: subsidized
and unsubsidized federal student loans.
Perkins Loans are a type of subsidized
student loans, with a fixed interest rate of 5% that does not start accruing until
repayment starts, typically 9 months after graduation. Similarly, subsidized
Stafford Loans, often referred to as the "good" kind of Stafford Loan, do
not accrue interest while borrowers are enrolled in college. Students begin paying
interest on subsidized Stafford Loans (currently fixed at 6.0%) 6 months after graduation,
when they begin repaying the loans.
Federal unsubsidized Stafford Loans,
on the other hand, charge borrowers interest while they are in school, with the
rate currently fixed at 6.8%. While students must have unmet financial need in order
to be awarded a subsidized Stafford Loan or a Perkins Loan, unsubsidized Stafford
Loans can be awarded as long as the student’s total financial aid does not exceed
their total cost of attendance.
There are limits on how much students can borrow each year in federal loans, but
there is no annual cap on Federal PLUS Loans.
PLUS Loans are taken out by parents and typically come with slightly stricter
borrowing requirements than Stafford Loans and Perkins Loans, which cannot be denied
to a student based on credit or employment status. A PLUS Loan application requires
a credit check, but getting approved has become easier, and additional unsubsidized
Stafford Loans are available to student borrowers if their parents’ PLUS Loan application
is denied.
Applying for Student Loans
You apply for federal student loans by
completing the FAFSA on the Web (the Free Application for Federal Student
Aid), an application also required for Federal Pell
Grants and other state and
federal grant programs. While Stafford Loans can be awarded at any time
to any student who meets basic eligibility requirements, Perkins Loans are awarded
by the school based on financial need and when the student applied for financial
aid. In addition to the information provided below, check out the
student guide to financial aid for more information on applying for financial
aid. Continue your scholarship search, as
well, but be sure to research your options for student loans at sites like CollegeLoan.com.
In addition to federal student loans, many students may also need to take out private
student loans, and after graduation, many students may want to consolidate their
student loans. Basic information about applying for, repaying, and consolidating
both federal and private loans is available below.
For students who need more financial aid beyond
the scholarships or grants,
and federal student loans they may have already been awarded, but for whom PLUS
Loans are not an option, private student loans are often the most attractive way
to pay for school. Many banks offer private student
loans, and it’s very likely that your local bank or your
Stafford Loan lender (if you go to a college participating in the FFEL program)
also offers private student loans.
Different lenders may have different requirements, rates, and repayment schedules,
so it’s possible for a wide variety of students to find private student loans that
work for them and their situation. Private loans can also be faster to get than
federal loans, depending on requirements and processing time, which also adds to
their appeal.
Private student loan applications are typically available online, through your lender
of choice, or from your school’s financial aid office. Many
private student loans require school certification, where the school verifies
that the amount requested fits within the student’s budget or cost of attendance.
Other private loans don’t require school certification and disburse funds directly
to the student, though they still ask that you use the money to pay for educational
expenses. Even if your loan does not require school certification, calculating your
college costs and how much you really need
to borrow is important to keep from over-borrowing.
Whether you’re an undergraduate
student or a graduate student,
if you complete the FAFSA on the Web
and receive a financial aid award notice from
your school of choice, chances are good you will see either "Subsidized Stafford
Loan" or "Unsubsidized Stafford Loan" listed as part of your aid package (hopefully,
though, it will be surrounded by scholarship awards
you won on Scholarships.com). While many people are surprised to see a student loan
"awarded" in their financial aid package, since Stafford Loans have low interest
rates, they can be a big help in covering the gap between your available funds and
your cost of attendance. So what are these student loans? How do you go about borrowing
them? What are the rates and fees involved? These and other
financial aid questions are addressed below. For more information on student
loans and other federal student
financial aid, please check out our resources
section or our student guide to financial aid as
well.
For students who still need more money to pay for school
beyond the Stafford Loans listed
on their financial aid award notice, Federal PLUS
Loans can be a good option, especially if you want to avoid taking out
private student loans and your parents are willing to help
fund your education. A PLUS Loan is still a low-interest federal student
loan, much like the unsubsidized Stafford Loan, but it can be taken out by a parent
or parents on behalf of a student, and thus is the parent’s responsibility to repay.
For more information on how to apply for a PLUS Loan, as well as info on interest
rates and repayment, continue reading below.
Now that you’ve learned all about all your different options for student loans,
you might be wondering just what’s going to happen with those loans after you graduate
from college. After all, unlike scholarship money,
student loans do eventually need to be repaid. You might have several different
types of student loans taken out, possibly from several different lenders, and keeping
track of all of those payments is probably already starting to sound intimidating.
Below, you can read about student loan consolidation, so that when the time comes
to stop borrowing and start repaying, you will know whether or not a consolidation
loan is the right choice for you.