Basic Types of Student Loans
Grants Dept.
Student loans are a good option for you to consider when looking for alternative sources of funding for your college education. There are various types and options available to you, but most of them are either private or public depending on the source of the funding. Public loans are from government sources and usually come as part of a financial aid package. The package often also includes scholarships and grants, which do not have to be paid back as opposed to student loans which need to repaid. Read more about paying back your student loans here.
Federal student loans are often granted to cover the cost of tuition, accommodation, books, school fees, and other miscellaneous expenses. They have relatively low interest rates as well as more flexible terms of payment but they can only be used strictly for paying educational expenses at an approved school.
Federal student loans are usually only available when you apply for
FAFSA
(free application for federal student aid). If approved they can either be paid
directly to the school or to the student directly by check, most of the time it
is paid directly to the school.
Federal student
loans are sometimes given to the parents of students; the interest rates are
usually higher for this type of financial aid but generally they are subsidized
by the government. The good thing about these types of loans is that the
interest rates are fixed and even most times negotiable.
How to Apply For Student Loans
The only way you can apply for a federal student loans is by filling out the free application for federal student aid forms. This lets the government decide if you are eligible or not and that includes grants and scholarships as well. These grants are issued on the basis of financial need and that is what will be used to determine the recipients. The information you put on the forms helps calculate how much you can afford to pay as part of your educational expenses and how much government funding you need.
There are four common types of student loans:
Stafford loans are the most popular type of government sponsored lending
and is open to students who are enrolled in a college or university that is part
of the family education loan program. They can be either subsidized or
unsubsidized. When they are subsidized it means the student does not have to
worry about any accruing interest rates while enrolled in school at least half
time or while enrollment is deferred.
If it is unsubsidized the student will have to pay interest as soon as the funds
have been released. Interest rates currently stand at around 5.5%, which is very
low compared to other sources of funding.
There are other types of federal loans available as well and they are:
• Perkins
This is very similar to the Stafford loan but has a lower interest rate. It is
issued strictly on the basis of financial need.
• Parent plus
These are issued only to parents to help in meeting the financial payments of
their children's education.
• Graduate plus
These are only issued to graduate students who are enrolled part time or full
time in an accredited graduate school.
Private loans
As the name implies are issued from private sources. They are mostly
unsubsidized and have higher interest rates and less flexible terms of payment
than the federal version. They are also available from many sources, mostly
banks. You need a good credit history to be considered eligible for a private
loan but if your credit history is not good you might still qualify by having a
good cosigner.
If you qualify for a private student loan there is a good chance you may qualify for a private student grant a well, so be sure to discuss this option thoroughly with your student counselor. Private grants do not have to be paid back so the time finding is well spent.
The key to this option is borrowing only what you absolutely need and that is after you have tried the federal option and applied for any grants available. You should only make it your last option because it does need to be paid back and it can add up very quickly.
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