Navigating Different Types of Student Loans
The word l-o-a-n has become a four-letter word, but student 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. There are two main types of students loans that students will encounter:
- Federal Student Loans
- Private Student Loans
In order to navigate the student loan process, it is critical that student and parents have a clear understanding of both types of student loans.
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 types of student loans from the federal government include Direct student loans, which provides low interest loans directly from the U.S. Department of Education.
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. In some situations, private student loans may offer better rates than Parent PLUS loans, so keep that in mind. Private student loans can be made to parents or students.
Bottom Line:
Student loans are an important part of paying for college for many students. Students should always take out federal student loans (with the possible exception of Parent PLUS loans) before borrowing private student loans. Remember, student loans need to be paid back, so you should not borrow more than is absolutely necessary. Another effective way to eliminate the need for student loans is by winning scholarships.
