Many students will have to access student loans in order to pay for their educations. Thankfully, between the federal government and private lenders, there are a variety of student loans available to help meet a student’s financing needs. Explore all the types of student loans available to you through private lenders, and federal and state governments.
When considering student loans, be sure to borrow only what you need and compare all of the different kinds of loans for college available to you before you borrow. Remember, outside of purchasing a home, borrowing to pay for higher education is likely to be one of the biggest expenses of your life.
There are two primary sources of student loans – the federal government and private lenders. In order to obtain most federal student loans, you will first need to file the Free Application for Federal Student Aid (FAFSA). As of July 1, 2010 all federal student loans are provided by the US government. Filing the FAFSA is required for all federal financial aid including, in most cases, all federal student loans. There are five main federal loan programs:
- Direct Student Loans
- Direct PLUS Loans for Parents
- Direct Graduate PLUS Loan
- Direct Consolidation Loans
- Federal Perkins Loan
Private student loans are available for both undergraduate and graduate students. There are also private consolidation loans.
You can learn the ins and outs of each at their respective pages on this site, but here is a brief overview of each.
Direct Student Loans
Direct Student Loans are made in the name of the student, based on need (only the subsidized portion), does not require a credit check (it’s guaranteed and backed by the government rather than credit/income/assets, etc.) and does not have to be repaid until after the student graduates, leaves school or stops attending on at least a half-time basis. Schools that participate in federal student aid programs offer Direct Student Loans "directly" through the federal government. These federal student loans were formerly known as Stafford loans.
Direct PLUS Loans for Parents
Direct PLUS Loans for Parents are made in the name of a parent. While they do require a credit check, the credit criteria to obtain a PLUS are generally not as stringent as they are for other types of consumer loans since they are based on federal requirements. Repayment of a PLUS loan begins after the loan is fully disbursed. PLUS loans disbursed on or after 7/1/2008 may have payments postponed while the student is in school at least half-time, however interest will still accrue. Be sure to read your loan disclosure and contact your servicer if you would like to postpone the payment on your PLUS loan. Again, schools offer PLUS through the federal government; they are no longer available through private lenders or banks.
Direct PLUS Loans for Graduate and Professional Students
The Direct Graduate PLUS is just like the PLUS for parents except that it is made in the name of a graduate or professional student. However, the student must apply for the maximum annual limit of Direct Unsubsidized Student Loan before applying for the Graduate PLUS. It is important to remember that Direct PLUS Loan for Graduate and Professional Students requires payment within 60 days after the loan is fully disbursed. Deferment options are available while you are still attending school at least half-time. Note: Servicers usually will automatically place Grad PLUS loans in deferment.
Direct Consolidation Loans
A Direct Consolidation Loan enables borrowers to combine all of their federal student loans into one federal loan consolidation is for student borrowers who are in repayment status or parent borrowers who wish to extend the repayment period on their current PLUS loans and obtain a fixed interest rate for those loans which might have a variable interest rate. You can combine all of your eligible federal student loans into one loan with a Direct Consolidation Loan. Consolidating also locks the interest rate you pay on your loan. In addition, by consolidating you can possibly lower your payments by extending the length of the repayment period for your loan. However, with the extended term, you will end up paying more in interest over the life of the loan.
The Perkins Loan has a fixed interest rate of 5% and repayment doesn't begin until 9 months after a student stops attending at least half time or graduates. The school's financial aid office determines eligibility for Perkins. Only the neediest of undergraduates and graduate students will receive Perkins.
Private Student Loans
If federal loans are not enough to cover your educational expenses, or if you want a loan that is in the student’s name, there are private student loans (sometimes called alternative student loans). Private loans are made by banks and other lenders. They must be used solely for education expenses. They do not carry the federal benefits which Direct Loans offer and the interest rates can be higher than federal loans. In addition, you will need good credit and most students will need a qualified co-signer in order to obtain a private loan. Also, while interest rates, fees and other loan program terms are competitive, they vary widely from lender to lender. It is important to compare your options before choosing a private loan. Once you have found a loan that meets your needs, you can usually apply online and in many cases get an instant decision on approval.
Private Student Loans Consolidation
Finally, if you have borrowed private student loans, some lenders offer private student loan consolidation . Private student loan consolidation allows you to refinance an existing private loan or combine multiple private student loans into one single loan. Pay careful attention to the weighted averaged interest rate on your existing loans and compare it to the rate offered for your consolidation loan. While it may be more convenient to have one lender to repay, you may end up paying more for the convenience. However, current interest rates are very low and you may be able to save a substantial amount through consolidation.
The bottom-line with student loans is that you do have options when you cannot pay all of your college costs. Make sure you take advantage of federal student loans before you borrow a private student loan. And, when you do borrow any student loan be sure to borrow only what you need.
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