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There are really only two
types of Student Loans: Federal Student Loans, and Private Student
Loans. The difference between the two is much more than just
one word. The question of which is better, Federal Student
Loans, or Private Student Loans is not easily answered without a
little research. The following is a broad breakdown and review
of both types of Student Loans
Federal Loans If you need to take out a loan to help pay for your education, you should always look at federal loans first. The largest source of education loans around, federal loans are long-term loans with low interest rates designed for students who need money for their educations. They have several benefits when compared to other borrowing options, including - Lower interest rates
- Options to postpone payments
- Longer repayment terms
- Easier credit requirements
Eligibility for some of these loans, such as the Federal Perkins Loan and the Subsidized Federal Stafford Loan, are needs-based, while others are not. You will need to complete a FAFSA to apply for these loans. The most common federal student loans are listed below:
Federal Perkins Loan The Federal Perkins Loan is a low-interest loan available to students who have exceptional financial need, based on the information provided on their FAFSA. Undergraduates can borrow up to $4,000 per year, while graduate students can borrow up to $6,000 per year.
Federal Stafford Loan The Federal Stafford Loan is available to undergraduates and graduate students. Loan amounts depend on a student’s year in school and whether they are financially dependent or independent. Your college’s financial aid office determines your eligibility. Stafford loans can be subsidized or unsubsidized. Financial need determines which type a student is eligible for. Subsidized loans are based on financial need. The
goverment pays the interest while the student is in school, in deferment, and in their grace period. Unsubsidized loans are available to all students, regardless of income. The student is responsible for all interest.
Federal PLUS Loan
The Federal PLUS Loan (Parent Loan for Undergraduate Students) is a low-interest education loan for parents. Each year, parents can borrow up to the cost of attendance, minus other financial aid received (scholarships, grants, student loans, etc.). The PLUS loan is not based on financial need. Qualified applicants must pass a credit check.
Private Loans
Private loans are designed to supplement federal loan programs and are available from schools, banks, and education loan organizations. They are usually used to cover education costs that cannot be met by federal aid. Terms for these loans vary according to the lender and your credit history. Keep these things in mind as you consider taking out a private loan: - Private loans have credit requirements, and you may need a co-signer
- The lender determines the interest rates and fees, which may be affected by your credit score
- Private loans may not offer deferment options
- Private loan programs may offer borrower benefits, such as interest rate discounts or rebates
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