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Department education loan | Types of School Loans
December 2, 2010 | 4 Comments
DEPARTMENT EDUCATION LOAN
There are a number of different student loans out there designed to fit your specific borrowing needs. A brief overview of each type appears below.
Stafford Loans
A Stafford Loan is a type of federal student loan that is paid back by the student.
How much you’re eligible to borrow with a Stafford Loan is determined by your year in college (freshman, sophomore, junior, senior) as well as yourExpected Family Contribution (EFC). The interest rate on Stafford loans is fixed by the federal government and you can find the most current interest rates here.
There are two types of Stafford Loans – subsidized and unsubsidized.
- Subsidized means that the federal government will pay the interest on the loan while you’re in school. Your first payment is due within six months after you graduate, stop attending school or drop below half-time student status. In order to receive a subsidized Stafford Loan, you must be able to demonstrate the appropriate level of financial need.
- Unsubsidized means that you are responsible for all interest that accrues on your loan from the time of disbursement through repayment of the loan. You can have the payments deferred until after you graduate or leave school, whichever comes first.
There are limits to how much you can borrow per year in Stafford Loans, depending on your year in school and your family’s financial situation. You could reach the limit by getting just a subsidized loan or just anunsubsized loan. However, some students will combine the two by borrowing beyond their awarded subsidized loan amount in the form of an additional unsubsidized loan.
Federal Loans
One source of student loans is the U.S. government. The main student loan programs administered by the U.S. Department of Education are the Federal Family Education Loan (FFEL) Program, the William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Perkins Loan. The FFEL and Direct Loan programs both consist of Stafford Loans (for undergraduate students) and PLUS Loans (for parents and graduate students).The Federal Perkins Loan is a loan for undergraduate and graduate students.
Graduate PLUS Loans
A Graduate PLUS Loan is a type of federal loan that allows you to borrow money to finance your post-graduate education. Graduate PLUS Loans are a lot like Parent PLUS Loans; however, unlike the Parent PLUS Loan, the amount you can borrow with this loan is not based on financial need. This loan has a fixed interest rate set by the federal government and generally needs to be paid back starting within 60 days after the funds have been completely disbursed.
Parent PLUS Loan
A Parent PLUS Loan is a type of federal loan that is taken out by parents with dependent students in order to supplement their student’s financial aid package and is paid back by the parent. The amount a parent can borrow is determined by subtracting the amount of financial aid the student receives from the student’s cost of attending a particular school as defined by that school. So, if you attended a school that cost $35,000 a year, and you receive a financial aid package of $15,000, the maximum amount your parent could borrow with a PLUS Loan would be $20,000 per year.
PLUS Loans have a fixed interest rate, set by the federal government, and are subject to passing federal guidelines for credit-worthiness. Repayment of these loans generally begins within 60 days after the funds have been completely disbursed; then your parent has up to 10 years to finish paying the loan off. There isn’t a grace period on PLUS loans; interest begins accruing immediately. The repayment amount includes both the principal and the interest.
Private Student Loans
Private Students Loans are another source of funds for college. These loans are typically offered by private lenders, like banks, and are used when you still have a gap between your cost of attending a particular school and the financial aid and/or federal loans that you have been awarded. Most people use private loans when the government-based student and/or parent loans either do not provide enough aid to cover the cost of college or do not provide repayment options that are flexible enough for them.
The Private Student Loan is one of the more popular private loans taken out to pay for college. These loans are available directly from banks, and the student is the borrower, although a parent is frequently asked to co-sign. Standard features of these loans might include flexible repayment options, greater loan limits and higher maximums. Private student loans generally cost more than those you would receive from the federal government, so if you need to consider a Private Student Loan, you should shop around to find the best terms.
Perkins Loans
A Perkins Loan is a type of federal student loan that is paid back by the student. This loan is awarded to students who show “extraordinary financial need.” Perkins Loans typically have a $5,500 per year maximum and $27,500 total maximum that can be borrowed by each student. The interest rate on a Perkins Loan is fixed by the federal government at 5%, and you will typically have up to 10 years to repay the loan, depending on how much you owe.
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