Colleges offer many student loans
Here are the basics on the types of student college loans. Read on to determine the best loan option for you.
Federal Student Loans
Federal loans are the largest source of education loans. Loans available under federal programs have very attractive terms when compared to most other borrowing options.
Stafford Loans
Stafford loans are low-interest loans made to undergraduate and graduate students attending accredited schools at least half-time. Eligible expenses covered by Stafford loans include tuition and fees, room and board, books and supplies, transportation, and living allowance. Both subsidized (need-based) and unsubsidized (non-need-based) loans are offered. With a subsidized loan, the federal government pays the interest while you are in school at least half-time and during authorized deferment and grace periods. You become responsible for the interest at repayment. With unsubsidized loans, you are responsible for all interest that accrues.
PLUS Loans
PLUS loans, or Parent Loans for Undergraduate Students, enable parents to borrow money for each dependent, undergraduate student enrolled in school at least half-time. Parents may finance up to the full cost of each student’s education each academic year, minus grants and other financial aid received. Parents do not have to prove financial need; however, a credit check is required. Parents who do not pass the credit check may still be eligible, if they have a credit-worthy co-borrower.
Perkins Loans
Perkins loans are low-interest (5%) loans for undergraduate and graduate students with “exceptional” financial need. These loans are made directly to qualifying students by the school in partnership with the U.S. Department of Education (ED).
Private Loans
Private loans are designed to supplement federal loan programs and are available from schools, banks, and education loan organizations.
Private loans are credit-based loans made to students by private banks and lenders. The terms of these loans vary from lender to lender. The interest rates and fees charged for private loans are generally higher than those for federal loans, because lenders assume 100% of the credit risk without a federal guarantee on these loans. Additionally, the rates and fees on these products are often directly tied to a borrower’s credit history. A borrower with a good credit history will probably receive rates and fees considerably lower than a borrower with a poor credit history.
Home Equity Loans
Home Equity loans allow you to borrow against the money you’ve already put into your home.
Some families borrow against the worth of their homes to fund some of their education expenses. Because lenders hold the home as collateral, home equity loans generally carry low interest rates. However, they often come with high fees, due to the amount of legal research and filing required. Home equity loans are typically either term loans, meaning that there is a single disbursement that has to be repaid over a specified period of time, or lines of credit, which allow borrowers to draw down on their available line amount as needed.
Which student loan type is best?
Your optimal loan option is determined by your family’s unique situation. Consequently, the best loan option is different for each family. To properly analyze your financial situation, long term objectives and short term restrictions, you should consult with a loan consultant.
