December 11, 2017

Making Sense of Student Loans

Student loans are both a blessing and a curse for college. As much as they can help you pay for an education, they can also be confusing, complicated, and can put you in unnecessary debt if you don’t have some basic sense of how each works.

Common types of student loans:

  • Federal loans, including subsidized and unsubsidized loans
  • State loans
  • Private loans

Federal Student Loans

Federal student loans offer college students and parents some of the most affordable financial aid available, with attractive repayment terms and grace periods.

  • Subsidized loans are available to students with significant financial need. They are “subsidized” because the government pays the interest on the loan until students graduate or otherwise leave school.
  • Unsubsidized federal loans are not administered based on financial need and students are required to pay the interest as it accrues, or adds up.
  • The Stafford Loan is possibly the most popular and widely administered federal loan. This low-interest loan, requires no credit check, and comes in both subsidized and unsubsidized versions, making it valuable for nearly all students, undergraduate and graduate alike. It’s quite common for students to have loans for both subsidized and unsubsidized Stafford Loans, depending upon financial situation.
  • PLUS Loans are credit-based loans available to parents of college students and to graduate and professional level students.
  • The Perkins Loan program is a campus-based loan program available to limited numbers of students that can demonstrate exceptional financial need. Participating campuses have Perkins dollars available on a first-come, first served basis, so students should apply early for aid.
  • Federal Consolidation Loan is available for students that have multiple federal loans and may need to consolidate to save money and streamline their loan repayment.

Currently, all federal student loans are made available through the Federal Direct Loan Program—part of the U.S. Department of Education. To apply for federal student aid you can complete the FAFSA (Free Application for Federal Student Aid).

(As of July 2010, private banks and lenders ceased to administer any new federal student loans.)

State Student Loans

Many state higher education commissions provide college financial aid products, including scholarships and grants, as well as supplemental loans. You could very well find loans for undergraduates, graduates, and for students pursuing special career education such as teaching and nursing.

Private Student Loans

Private student loans are in limited supply, but where available they can help you pay the balance of a college tuition not covered by federal and state loans, and scholarships and grants. Make certain you borrow from a reputable lender and understand all terms of the loan before signing the master promissory note. Expect any private student loan to require you submit to a credit check.

Private college loans enjoyed a heyday just prior to 2007, thanks in large part to steep spikes in college tuitions and questionable “back door” relationships between some college financial aid officials and private lenders. Following an intensive investigation into the industry, many lenders ceased offering private student loans.

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