Student loans that are used to finance students' college education typically fall into two different categories: federal student loans and private student loans. Below is information about each type of loan.
There are several different types of federal student loans. These federal loans typically have lower interest and lower fees than most private loans. To qualify for most federal student loans, students many of the federal student loans, students must complete the Free Application for Federal Student Aid (FAFSA).
Stafford Loans
Stafford Loans are low-interest federal student loans available to those who qualify. There are two types of Stafford Loans: subsidized and unsubsidized.
Subsidized Stafford Loans:
Subsidized Stafford Loans are available to students who have a demonstrated financial need. The federal government will pay the interest on subsidized Stafford Loans while the borrowers are enrolled in college. After leaving college, borrowers have a six-month grace period before they must begin the loan repayment.
Unsubsidized Stafford Loans:
College students do not have to have a financial need to qualify for unsubsidized Stafford Loans. Eligibility is based on enrollment.
Students are responsible for payment of interest for unsubsidized Stafford Loan at the time the loan is disbursed. Borrowers may pay the interest while attending school or allow the interest to be capitalized to the loan principal through the grace period. Borrowers have a six-month grace period after leaving college before they must begin repaying the principal of the loan.
Perkins Loans
Perkins Loans have a very low interest rate. Only students who have demonstrated the strongest financial need can qualify for these loans.
The federal government pays the interest on all Perkins Loans while students are enrolled in college. After leaving college, borrowers have a nine-month grace period before they have to start repaying these loans.
Parent PLUS Loans
Parent PLUS Loans can be taken out by parents of undergraduate students to help their children cover their educational expenses. The interest rate is fixed and determined by the federal government. To be eligible for these loans, parents must undergo a credit check. The parents are responsible for the repayment of Parent PLUS loans.
Parents are responsible to begin repayment on the loan as soon as it has been disbursed. However, repayment may be able to be deferred while student is attending college. The federal government does not subsidize the interest on PLUS loans. Therefore, even if the repayment has been deferred, the loan will continue to accrue interest. The interest will be capitalized to the loan principal
Consolidation Loans
Once students are no longer enrolled in college, they may be eligible to consolidate their federal loans into one loan. Once borrowers have consolidated their loans, they cannot consolidate again unless they add a new loan.
Consolidation can help borrowers manage their loans. It can also help some borrowers meet their repayment obligations because the length of the loan is often extended and the monthly payments are lowered. The interest rate for consolidation loans is a low fixed-rate based on the average rate of the loans that were consolidated.
There are many lenders that offer private loans to students. Students who have a gap between their other financial aid and educational expenses or living expenses, might consider applying for private loans. Also, students who do not qualify for traditional student aid might want to apply for private loans.
Private student loans typically charge higher interest rates than federal student loans. Typically, the fees for these loans are also higher than for federal student loans.
Students who want to borrow from private lenders will have to undergo a credit check. Those who cannot qualify for private loans on their own may be able to qualify with a cosigner.
