The Article Home

Types of Student Loans

It is now time for you to start planning your college career. It is probably your junior or senior year and you want to find out as much information as you can about financing your four or more years as an undergraduate college student. Hopefully, you have done very well in school and don’t need much assistance because you’ve received an academic scholarship. But we all know that college is getting more expensive each year and many scholarships don’t do the trick anymore. If your family can prove they’re in need of financial assistance, you may be able to get a federal grant. But if it seems as though you are still coming up short in the financial arena, then your next step may be to look at student loans.

Student loans are loans given to students through established financial institutions. They help the student pay for college and typically don’t require that they pay any money back until after they graduate. As long as you are a student in school, you are cleared of having to pay. But as soon as you lose that status, you are required to begin payments. And depending on how much money you borrowed, you may have to pay for the next 30 years.

When deciding how much money you want to borrow, it is best to work with your school’s financial aid office to gauge how much your tuition, room and board will cost you, then add in the expenses for books, meals not covered in the meal plan, gas money, and any other expenses you can predict. If you are realistic when borrowing money, you will find that you usually won’t have to worry about paying as much back later in life. I say this because it is easy to want to borrow the largest allowable dollar amount so that you can buy plenty of new outfits, but taking out student loans is like using a credit card – the interest can be very high – so you have to take responsibility early so that you won’t regret your choices later.

Now that you’ve learned the basics of student loans, let’s look at the well-known borrowing options to see what might work best for you.

Perkins Loan

Perkins loans are typically reserved for people who are in financial need. Your level of need is determined by the information you fill out on your FAFSA (Free Application for Federal Student Aid). On the FAFSA form, you or your parents (if you are their dependent) must tell your income and provide proof based on the previous year’s tax forms filed with the IRS. Once the representative from the school you’re attending looks over your FAFSA they can help determine how much they’re willing to grant you for your Perkins loan. In many cases, students receive the full amount allowable through the government, which is $4,000 for undergraduates and $6,000 for graduates – but again, it is totally up to the school to decide.

In order to become eligible for a Perkins loan, you simply apply for one – or in many cases, the school will automatically consider you depending on your financial status.

Parent PLUS Loans

Federal Parent PLUS loans are college student loans taken out by parents who want to pay for their child’s educational expenses – and have good credit. The requirements for being able to take out the loan for the child include the student being a dependent and being enrolled in school at least half-time at a college or university approved by the program.

Like the Perkins loan, a PLUS loan has a low interest rate mandated by the government. Also, like the Perkins loan, you have to fill out the FAFSA to be eligible. However, you don’t have to be need based to qualify. And it allows you to take out the cost of the full amount of the student’s education, including tuition, room and board, books, lab fees and gas money with no need for collateral – and the interest is tax deductible.

Stafford Loan (Subsidized)

Subsidized Stafford student loans are also mandated through the federal government. And they are also based on financial need. If you or your parent is not making enough money to cover tuition – as determined by the school – you will be considered to have financial need. You must fill out a FAFSA to be eligible for this loan, and the amount you will receive is determined by your school. The maximum amounts you can receive for these student loans are $3,500 for freshman, $4,500 for sophomores and $5,500 for juniors and seniors.

In order to continue your eligibility of the loan, you must be enrolled in a qualified school as a half-time student or more. Once you graduate, you will begin to pay off the loan (after a 6 month grace period that allows you to secure employment).

Stafford Loan (Unsubsidized)

The unsubsidized version of the Stafford loan does not require that you have financial need to obtain one. Like the subsidized version, you do need to fill out the FAFSA to be eligible; however, anyone is actually able to get one, as long as funds are available. With this loan, you can request as much as you want – and may actually get the full amount, which follows the same maximum borrowing amounts as the subsidized version.

The major difference between subsidized and unsubsidized is that the latter accrues interest from the time you take out the loan until it is repayed, whereas the subsidized loan has the interest paid by the government until the student is no longer in school with at least half-time status. If you choose, you can pay on your accruing interest while still in school to soften the blow after graduation. Or you can wait to pay later without penalty – you just will have more tacked onto your repayment plan.

Private Loans

If you find that you are in need of financial assistance but you are not able to take out any of the above student loans, then you can always try a private loan through a private financial institution. Some of these institutions include Astrive, Sallie Mae and Citibank. The eligibility requirements and repayment terms vary with each institution and should be checked on individually to decide if this is something you want to pursue.

Other Financial Assistance

In addition to student loans, grants and scholarships, many schools enroll students in a federal work study program, where they are given an on-campus job that may range from 10-20 hours of work each week to help them bring in additional money for school. However, if for some reason you are in debt to your school, the money from your work study check goes to the school before you see it, seeing as you get paid through the school’s cashier.

Learning the basics of student loans will help you make informed decisions before diving in and making choices that you very well may regret for the rest of your life. So your best bet is to do your homework on student loans now, this way you can ensure you’ll have a worry-free and successful four years of college to look forward to.

Information on Student Loan Consolidation

Often times, when you take out a student loan in college, you never realize that at some point you will have to pay it back. That reality seems so far away. So when the time comes, it can not only be startling, but also feel impossible to actually do. If you are someone who had little financial support in school, it is not uncommon that you would have taken out every loan that you could while they were available. Then when payback time arrives, you realize you may have to pay anywhere from $400 to $1000 per month in loans – and the repayment terms could last for up to 30 years. For those with this type of future ahead of them, student loan consolidation is a very welcome option. This is because you are able to combine all of your loans into one little neat package, to avoid having to keep up with several repayment schedules. There are other benefits to student loan consolidation that we will explore in this article so that hopefully, by the end, you will be able to look at resources that will make your loan repayment plan much easier.

Federal student loan consolidation is an assistance program set up by the United States Government to help assist those who have multiple loans that they are in the process of trying to repay. For example, if you have taken out a Federal Stafford Loan and a Federal Perkins Loan, and you have now graduated, you have a grace period of typically six months and then you will be responsible for paying back your loans. This becomes a problem for those who have not acquired a job that is able to cover the cost of the monthly repayment schedule.

Many find that when they pay their loans separately, they can easily add up to the equivalent of a generous car note or mortgage rather quickly, so student loan consolidation was created to kill more than one bird with one stone. Of course, with student loan consolidation, you don’t have the burden of timing your paycheck with your loan payments, or worry about fumbling with all of the payment booklets. But you also normally receive a much lower monthly payment through consolidation, often times up to 50% less, than through standard repayment – not bad! The one drawback is that you will probably have a longer repayment term than you would have with one or both of the loans, so you have to decide if this detail makes it worth it.

Also, though you typically have a fixed interest rate throughout the term of the loan, your interest rate will most likely be significantly higher than that of your standard loan repayment. This means that you could end up paying up to double the amount of your actual loan amount by time the loan term is completed. If this is not a concern for you, as it is not for many, then you are on the right track with student loan consolidation.

Some of the top student loan consolidation companies are Sallie Mae, Citibank, Nelnet, and the Federal Direct Student Loan Program. All of these companies and programs arranged over 100,000 student loan consolidations in 2006 and are looking to help more students adjust their financial situation to better suit their present economic status.

I bet you’re wondering how it is possible that these companies are able to consolidate your loans for you. Well student loan consolidation is very similar to any other type of debt consolidation. The above-mentioned companies, and others like them, pay off all your loans with the companies that you were originally working with and create a separate package. So the good thing is that you no longer owe the original companies owed, which can, in a sense, clean up some of your credit report. However, you now owe a brand new company and have new debt with a new interest rate and new repayment term.

When consolidating your loans, take into consideration the types of loans you’re consolidating. As mentioned before, many loans are taken out through the federal government, but then there are also private institutions and organizations that give out loans. When consolidating, it is always advised that if you have both private and federal loans to pay back that you start by consolidating the federal loans then later consolidate the private loans separately. This is because federal loans include a lower interest rate (which is federally governed) and allow you to increase your repayment term to 30 years, which reduce your monthly payments.

Private loan consolidation through companies like Sallie Mae or Citibank are not controlled through a government mandate, which means the interest rates are likely to be higher. Also, you may not be eligible for the longer-term repayment schedule, which is a vital detail for some. However, many private consolidation companies offer “sign-on bonuses” which normally equate to you being able to cash a check of several hundred dollars in return for consolidating with them. When making a decision on how to consolidate and with whom, always take everything into consideration because your commitment will most likely be a lengthy one.

As you need to do with any decision that requires you to spend your money or may affect your credit, you must look at all of the options available and weigh them seriously – and student loan consolidation is no exception. Consolidating your loans can definitely help you lower your month-to-month expenditures, which is great for short-term considerations. But when you begin to plan your long-term monetary goals, and add up your mortgage, car note, and any other long-term expenses, you must think wisely about the student loan consolidation program that will work best for you. It is very easy to think of what seems to the best decision that will affect the next few months, but once those months pass and you’ve reached the “next few years,” will you regret your choice? Avoid regret later by making the right choice now. Do your research – and good luck!