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Student Loans: An Overview Living Smart 

Student Loans: An Overview

Education-Student-LoansSmallAs we enjoy the summer, we may have to begin thinking about college and how we will be funding it in the near future. There are many types of different ways a college education could be funded, but one major source for many individuals is student loans.

However, with so many types, it is important to consider which kind of student loan is best for you and which kind of student loan you are eligible for.

Direct Loans:

Funded through the William D. Ford Federal Direct Loan Program, Direct Loans is the largest federal student loan program where the U.S. Department of Education is your lender. There are four types of Direct Loans: subsidized, unsubsidized, PLUS, and Consolidation which help determine your interest rate and maximum loan amount. For both types of loans, if you choose to defer payments, your full payments would begin 6 months after graduating, leaving school, or dropping below half-time enrollment.

  • A subsidized student loan is available to undergraduate students that demonstrate a financial need (usually families with an annual income below $50,000). Your school would determine the amount you can borrow, and the amount cannot exceed your financial need. In addition, the government pays your interest on the loan while you are in school and enrolled at least half-time, during the first 6 months after graduating, and during any deferment period.
  • An unsubsidized student loan is available to all undergraduate and graduate students, and there is no need to demonstrate a financial need. Your school would determine the amount you can borrow based on your cost of attendance and other financial aid you are receiving. You would be responsible for paying the interest on an unsubsidized loan during all periods of the loan.
    What this means is that if you defer payments until you graduate, you would still have to pay the interest on the loan while you are in school. You can choose to make interest-only payments while you’re in school, or have the interest accumulate and capitalize (your interest will be added to the principal amount of the loan which you will begin paying when you graduate).
  • PLUS Loans are used to cover expenses that are not covered by other financial aid means. These can be taken out by the parents of dependent undergraduate students or by graduate students themselves.
  • A consolidation loan allows you to combine any federal education loan you have into one loan so you have only one single monthly payment instead of multiple payments.

student-with-parents1Other types of loans:

  • Perkins Loans: Perkins loans are low-interest federal loans administered by the school for students that demonstrate exceptional financial need. All Perkins Loans are subsidized and funded by the government.
  • Private & State Loans: Both private loans and state loans are non-federal loans, but they can help students ineligible for federal aid or those who do not receive enough aid to cover the cost of attendance.
  • Institutional Loans: Institutional loans are non-federal loans given to students by the school.

FAFSA_Logo_HeaderAs shown above, there are many different types of student loans available! Additional information regarding the types of loans and additional financial aid can be found at studentaid.ed.gov. In addition, you can begin filling out your Free Application for Federal Student Aid (FAFSA) at fafsa.ed.gov.

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