Introduction to Student Loans
The word l-o-a-n has become a four-letter word, but loans are a reality for many students. Many schools have financial aid packages that include loans. Other schools “gap” (ie: do not meet all need) students which can leave private loans as a final option.
Additionally, the cost of attendance of a college is more than just tuition, room, and board. Travel expenses to school, books, a computer, and other expenses add up. Scholarships are the best option (because you do not need to pay them back), but few students are lucky enough to pay for college in its entirety with scholarship grants.
Loans come in all shapes and sizes, so we hope that this introductory dive into the world of student loans is useful. Remember, that scholarships, grants, and savings can also help pay for college and loans should be a final option only.
Let’s take a look at the two main student loan types:
Federal Student Loans
Federal Student loans fall under two categories: student loans and parent loans. Broadly, student loans are taken out by students and parent loans are taken out by parents of students.
Federal Student Loans
Federal student loans are loans from the government made directly to students. These loans require no payments as long as the student is enrolled in school at least halftime. Federal student loans include Stafford Loans, which can be subsidized or unsubsidized. What is the difference? Both types of Stafford loans accrue interest when you are in college, but with Subsidized Stafford Loans, the government pays the interest while you are in school. Other Federal student loan types include Perkins Loans, which are low interest loans for students with expectational need, and Federal Direct Student Loans, which provides low interest loans directly from the U.S. Department of Education.
Federal Parent Loans
Parents can be a HUGE part of the financial aid process for students. From assisting with the FAFSA to paying a chunk of the bill, they can be very helpful! Parents of students who are dependents can actually take out loans to help pay for college. The federal government offers loans called Parent PLUS (Parent Loans for Undergraduate Students) loans. These can help pay for the cost of attending a college that is not covered by their child’s financial aid package. Parent Plus loans can range up to the full cost of attendance. It should be noted that these loans are the financial responsibility of the parent, not the student.
Private Student Loans
Private student loans are typically the final type of loan families will look at (they are also called alternative student loans). If you are in a situation where your federal/institutional loans and grants are not enough, private student loans are a way to bridge the gap. The rates offered are usually higher than federal student loans (another reason they are third options, but payments can be deferred until graduation). Private student loans can be made to parents or students.
Do you have further questions about student loans?
If you have further questions, it is always worth getting in touch with the financial aid office at your school (or the school you are interested in attending). While many of these conversations will be more relevant at a later date, it is good to make the connection now.
How much is too much?
This is a good question. I know that there are tons of stories in the news about people who graduate with $100,000+ in debt. To be honest, most of those deal with graduate school. For undergraduate school, it should not be necessary to take out that much in student loans. If you are graduating with $20-30,000 in total student debt, that is a very reasonable amount of money (and will amount in loan payments similar to a car payment when you graduate).
Remember, the best way to finance college is through scholarships that don’t need to be paid back. Make sure you check out all the great scholarships at scholarships360 regularly!