What Are Student Loans?
Overview of Student Loans
Finding money to pay for your education can be as nerve wracking as getting admission to a college of your dreams. With tuition costs increasing drastically every year, more and more students are turning to student loans to help pay for their education. This article will help you understand the various student loan options you have and hopefully this will make your search a little easier.
First and foremost, before you even contemplate a student loan, you should look for a scholarship program or a student grant such as a pell grant that will help you cover the costs of your schooling. Why are scholarships and grants better? Simple, you do not have to repay them. That said, it is rare for a scholarship or a grant to cover your entire education costs so a student loan might be something you have to look into at some point. Nevertheless, you should always first start your financial aid search by exploring various scholarships and grant options failing which you should then consider a student loan.
Types of Student Loans
There are basically two types of student loans
- Federal Student Loans
- Private Student Loans
Federal Student Loans
Federal student loans are those that are funded or guaranteed by the government or more particularly The U.S. Department of Education Federal Student Aid (FSA). Federal Student Aid (FSA) accounts for nearly 70% of the financial aid given to students. Both undergraduate and graduate students can apply for a federal student loan. You will have to be enrolled in a participating school and in an approved program. Federal loans are decided based on the need of the student.
Perkins Loan
The Federal Perkins loans is a low interest loan that is made available to extremely financially needy students. Perkins loans have one of the best interest rates on a student loan. No interest is charged when the student is in school and payments begin after a deferment period of 9 months after the student graduates from school or if their enrollment drops below 50%. Read more about Perkins loan.
Stafford Loan
Federal Stafford loans are federally funded loans that are again low interest loans and generally long term as well. A Stafford loan can be subsidized or unsubsidized. In the case of subsidized Stafford loans, the government pays the interest accrued on the loan when the student is in school. Unsubsidized Stafford loan requires the student to pay the interest on the loan. Usually you can get a deferment or make interest only payments on an unsubsidized loan while the student is in school. The loan terms for a Stafford loan is 10 years. Read more about Stafford loan
PLUS Loan
A PLUS loan or also called Parent PLUS loan is a loan that is given to the parents of a qualified undergraduate student. PLUS stands for Parent Loan for Undergraduate Students. A students parent is responsible for the loan and is meant to cover the costs of education of the student’s undergraduate program less any other financial aid. The term for a PLUS loan is usually 10 years. Read more about PLUS loans.
Private Student Loans
Once you have exhausted all your federal funding options or if you need more money to cover the shortfall from your existing aid you can then approach private institutions such as banks and credit unions for a student loan. These loans are called private student loans. Private loans are not guaranteed by the government. The interest rates and payment terms are set by the lender. Read more about Private Student Loans
Getting financial aid and the right student loan is a long process. Plan ahead and do it early so that you are prepared when the time comes to be able to choose between multiple options rather than have to settle or be arm twisted into a less than premium student loan.