Student Loans 101

Types of Student Loans

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Federal | Private | Institutional

There are two primary categories of student loans for students and parents: Federal student loans and Private Loans. However, there are also institutional loans made by a school which can only be used to attend their school.

Federal Student Loans

There are two types of federal student loans available with various requirements for eligibility, interest rates, and repayment terms. Research the full spectrum of federal financial aid programs available to determine the best fit for your needs. For your convenience, you’ll find a wealth of US government financial aid information on our website but detailed information can also be found at the Federal Student Aid website.

The U.S. Department of Education has two federal student loan programs:

  1. The William D. Ford Federal Direct Loan (Direct Loan) Program is the largest federal student loan program. Under this program, the U.S. Department of Education is your lender.
  • Direct Subsidized Loans are loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school.

  • Direct Unsubsidized Loans are loans made to eligible undergraduate, graduate, and professional students, but in this case, the student does not have to demonstrate financial need to be eligible for the loan.

  • Direct PLUS Loans are loans made to graduate or professional students to help pay for education expenses not covered by other financial aid. Graduate students can borrower up to the cost of attendance minus any other financial aid. Students must not have an adverse credit history.

  • Direct PLUS Loans are loans made to parents of undergraduate students to help pay for education expenses not covered by other financial aid. Parents can borrower up to the cost of attendance minus any other financial aid the student receives. Parents must not have an adverse credit history.

  • Direct Consolidation Loans allow you to combine all of your eligible federal student loans into a single loan with a single loan servicer. This option is best utilized once you complete your educational career.

2. The Federal Perkins Loan Program is a school-based loan program for undergraduates and graduate students with exceptional financial need. Under this program, the school is the lender.

  • Loans made through the Federal Perkins Loan Program, often called Perkins Loans, are low-interest federal student loans for undergraduate and graduate students with exceptional financial need.

    Effective October 1, 2015, schools can no longer make Federal Perkins loans to new borrowers. Contact your school for more information.

Private Loans

Private Loans, sometimes referred to as “alternative student loans”, “private student loans” and “private education loans”, can be used to bridge the gap between the financial aid offered by your school and any outstanding need you may have. Private Loans are an alternative source of financial aid funding available through banks and other lending institutions, and can be used for most education related expense such as tuition, books, housing, utilities, computers, food, and lab fees.

Are you concerned with long term cost of the financial aid product you choose? Are you concerned with what will happen if you have trouble in the future making payments?  While most Private Loans are created to be less like a typical consumer loan and more like a Federal Student Loan you have to do your homework when considering a Private Loan.  Before you make a decision, know what is important to you and  compare all aspects of the Private Loan you are looking  at to your other financial aid options, including interest rate,  repayment terms and repayment options such as grace, forbearance, deferment, and repayment plans.   Every borrower is different and you will need to consider your situation in deciding which financial aid product is best for you.  You can get a Private Loan from banks, credit unions, and other types of lenders.  There are a number of ways to find a Private Loan.  In some cases, your school might recommend a Private Loan lender or provide you a list of potential Private Loan lenders.  You may also find a Private Loan through other means such as your banking institution, internet searches or information you may receive in the mail.   Unlike the process for Federal Student Aid, there is not one, uniform means to find out if you qualify for Private Loans.  Each lender will have their own application process and requirements.

Eligibility for Private Loans:

You must qualify for a Private Loan. Every lender sets their own eligibility criteria to decide if you qualify for their Private Loan program and how much you can borrow.   Most Private Loans require that a student be attending school at least half-time and require that your school certify your attendance.

The following is an example of the types of factors that might be considered by a lender to determine your eligibility for a Private Loan.  Remember this list is just an example, each Private Loan lender will have different eligibility criteria which should be provided to you when you are researching the Private Loan products and in the application process:

  •  Credit History
  • Whether you have a co-signer or co-borrower
  • The school you are attending
  • Your major or course of study
  • Whether you are an undergraduate or a graduate student
  • Whether your school participates in the Federal Student Loan Program
  • The Federal Student Loans you have qualified for

What can you do if you don’t have enough money to pay for school but you are not eligible for a Private Loan based on your credit history?  If you can’t qualify on your own, in many cases, a Private Loan lender will allow you to apply with a co-borrower or co-signer.  In most cases, the co-borrower or co-signer meets certain parts of the eligibility criteria for you.  But remember, if you apply and qualify for the loan with a co-borrower or co-signer, they become responsible to repay the loan if you are unable to make payments in the future.  Be sure the person you ask to apply with you fully understands what it means for them to apply as your co-borrower or co-signer.

Private Loan Interest Rates:

Many Private Loan programs charge either a variable interest rate or a fixed interest rate option. Private Loan interest rates are usually tied to the credit history of the borrower.

A variable interest rate is an interest rate that might go up or down depending on what is happening with the federal prime rate or another rate which is typically some type of federal rate. The rate that determines if your interest rate goes up or down is referred to as the index.  With a variable interest rate, your monthly payment can go up of up if your interest rate goes up or down if your interest rate goes down.  Typically, a variable rate loan will change quarterly, but it could change more frequently.

A fixed interest rate is one where your interest rate stays the same and does not change over the life of your loan.  With a fixed interest rate, your payments won’t change because of  interest rate changes or what is happening with federal rates.

Depending on the applicant’s credit, an origination fee may apply. You should carefully review the interest rates and fees to find a loan that best suits your needs.

Institutional Loans

In addition to participation in the Perkins Loan program, which is a federal loan program, the college you are attending or plan to attend may also offer Private Loans, where your college is actually who loans you money, that are commonly referred to as Institutional loans. Each school will have a different name for these types of loans. These are not scholarships or grants and this money must be repaid to the school with interest once you graduate or in most cases, once you fall below half-time enrollment status.

Continue to learn about applying for student loans.

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