Paying for college can be challenging even with grants and scholarships. Although student loans aren’t the most desirable way to cover the costs of higher education, they do come in handy. To decide which loan is best for your needs you should first learn about the basic types of student loans.
Federal Stafford Loans
The Stafford loan program goes through the Federal government. Unlike most student loans, you don’t need a credit check to receive one of these. You simply complete your Free Application for Federal Student Aid and mark that you are interested in student loans. Your college or university will determine if you need this additional financing and, if so, how much.
These loans can be either subsidized or unsubsidized. With the former, no interest is charged on the loan while you attend school at least half-time and for the first six months after you leave school. With the latter, you can either pay the accumulating interest while attending college or have it capitalized (added onto the principal of your loan).
Interest rates are capped at 4.5% (if you received your first loan payout between July 1, 2010 and June 30, 2011) or at 3.4% for students getting their first loan payout after June 30, 2011. You don’t have to start repaying these loans until you leave school or drop below half-time enrollment for six months.
Both undergraduate and graduate students can apply for these basic types of student loans.
PLUS Loans
The PLUS program also goes through the Federal government. In this case, only the parents of undergraduate students or graduate students can apply for the loans. You do need to have a decent credit history to qualify for the loans. Interest rates for these loans are capped at just below 8% and if you served in the military you may be eligible for a lower interest rate of 6%.
With these basic types of student loans, you begin repaying the loan after the last disbursement is made or you do have the option of postponing repayment as long as the student is enrolled half-time.
Federal Perkins Loans
These loans are not available to all students. They are intended to help students with financial hardships that need extra financing to cover their costs of attendance. Although the program is funded by the Federal government, your college actually lends you the money and is the one who is repaid. Interest rates are capped at 5% and the maximum borrowing amount is $5,000 per year for undergraduates or $8,000 per year for graduate students. The financial aid office at your school determines whether or not you are eligible for this loan and, if so, how much you need to borrow through the program.
Private Loans
The final basic types of student loans are private loans. These are available from banks and other financial institutions. You need to have good credit to get them. The interest rates on these loans vary so you want to shop around to find the best deal possible. Just as with the federal loans, you do have a grace period for repayment once you leave school but you may not be eligible for different repayment plans and you may end up paying higher interest rates. However, they can be a good last resort for funding your education.
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