Students seeking financial assistance to attend college have many options. Ideally, you have some money set aside and your parents are willing and able to help you pay for a college education, but if you still need money for tuition, books, and living expenses, there are a variety of loan options available to you. Here are a few different types explained.
Direct Student Loans
The most common type of loan that college students receive is a direct student loan, which is granted by the federal government (through the U.S. Department of Education) when students apply for federal financial aid through FAFSA (the Free Application for Federal Student Aid). Within this category, there are Stafford loans, federal plus loans, and consolidated loans.
There are two types of Stafford loans: subsidized and unsubsidized. Subsidized Stafford loans are so named because they are government subsidized, which means the Department of Education pays the interest on the loans while you’re in school (at least half-time), for six months after you graduate, and during a deferral period. In addition, subsidized federal loans are based on financial need, with the amount determined by your school.
Unsubsidized loans do not require you to prove financial need, but your school still determines the amount, factoring in the cost of attendance, as well as any other financial aid you already receive (i.e. grants, scholarships, etc.). Also, you’re responsible for all of the interest accrued on your loans.
Federal Plus Loans
This type of direct loan is intended to cover the gap in expenses not already paid for by other types of financial aid (grants and Stafford loans). These loans are still federal, but they are based on credit score and may have less favorable terms for repayment, although the interest rates are still low.
Students may take out several loans throughout the course of their college career. This type of direct loan consolidates all of these student loans into a single loan so that students paying down debt need to only make one payment.
While this loan program falls under the scope of federal loans, it is actually administered by individual schools and granted only to students with extreme financial need. For this reason, Perkins loans are not nearly as common as, say, Stafford loans.
Suppose you’re unable to receive all the funding you need for your school expenses through federal financial aid. If you can’t earn enough at a job or gain other funding through grants and scholarships, you’ll have to look for another source of funding.
Luckily, you can also take out student loans from private lenders to make up the difference and meet all of your financial obligations while you’re in college. Just keep in mind that private loans have very different terms, so make sure you understand the loan agreement.