There are several different kinds of student loans, making it
a little more difficult to choose a loan, but easier to get the
best loan for you. By learning about the different kinds of student
loans, you put yourself in a position to make an educated decision
about financing your college education.
Private and Federal Student Loans
The most basic categorization of student loans is federal and private. Federal student loans are provided and backed by the federal government. Some federal student loans are funded by private banks, but even in these cases, the federal government sets the interest rate, fees, and maximum amount borrowed.
Private student loans are provided by private banks. The interest rates on federal student loans are often lower than those of private student loans. Additionally, there is a more stringent approval process for private student loans, often requiring a good credit rating and minimum income level.
Types of Federal Student Loans
Even federal student loans can be further broken categories.
Stafford Loans can be taken out by students to fund their college education based on financial need. There are two types of Stafford loans available – subsidized and unsubsidized.
Subsidized Stafford loans are based on financial need. The government pays interest accrued while the student is enrolled in school.
Unsubsidized Stafford loans are not based on financial need. The student is responsible for making interest payments while enrolled in school. Interest payments can be deferred, but, if this is done, the interest can be added back into the balance of the loan increasing the total amount owed.
PLUS Loans, Parent Loans for Undergraduate Students, are taken out by parents to cover the cost of their children's education. There is a credit underwriting process for PLUS loans, so it is possible to be denied for the loan, if the parent doesn't meet the qualifications.
Graduate student are allowed to take out PLUS loans to finance their own education.
Perkins Loans, are given to students who have extreme financial need. Each of the 1,800 participating educational institutions is allotted a certain amount to award in Perkins loans. The financial aid department at each college is responsible for determining who can receive Perkins loans and the amount they can receive. Since there is only a limited amount of funds available, Perkins loans are usually low.
Applying for Student Loans
To apply for federal student loans, you must fill out a Federal Application For Student Aid. If you don't turn in this form, you will not be eligible for federal student loans, even if you have a financial need.
To apply for private student loans, you will make the application directly to the lender you are interested in borrowing from.
