November 23, 2010
The Types of Student Loans
Unfortunately, the task of understanding, researching and applying for student loans is generally looked upon as daunting and confusing. It shouldn’t have to be that way and won’t be that way with UHEAA by your side! We are here today to help clarify at least part of the student aid application process with a brief explanation of the different types of student loans available today.
(READ FIRST: In order to successfully apply for any federal student aid, it is imperative that you first fill out the Free Application For Federal Student Aid [FAFSA] which you can find at fafsa.ed.gov. After the FAFSA is complete, you will be supplied with your Student Aid Report [SAR] and from there you will be able to search for any federal student aid that you are eligible for!)
…And The Different Types Are:
1. Subsidized Federal Direct Stafford Loan: This is the most common type of student aid available. Most likely attributed to the fact that the interest rates are very low and the federal government even pays that interest while you are continuously enrolled in school at least half time, during your grace period or during periods of authorized deferment. Eligibility for the subsidized Stafford loan is based on financial which is determined upon completion of the FAFSA. This loan is not based on a credit check or credit score, making it a feasible option for students without credit history. For both dependent and independent students there are maximum amounts of subsidized loans you can receive per school year:
- Freshman: $3,500 per year
- Sophomore: $4,500 per year
- Junior: $5,500 per year
- Senior and 5th year: $5,500 per year
2. Unsubsidized Federal Direct Stafford Loan: With the unsubsidized Stafford loan, eligibility is not based on financial need but your personal/family financial information from the FAFSA is still considered. The difference between these two Stafford loans is that when a loan is unsubsidized, interest begins to accrue as soon as the loan is disbursed. It is an option (and a wise idea to avoid capitalization of interest) to pay the interest as it accrues. The other option is to defer the interest as you are enrolled at least half time, it is during your grace period, or during periods of authorized deferment. Dependent students, regardless of how long they have attended college, are eligible to receive a maximum of $2,000 additional unsubsidized aid per school year. For independent students, the amount of additional aid they can receive through unsubsidized loans depends on how long the student has been attending college:
- Freshmen: $6,000 per year
- Sophomore: $6,000 per year
- Junior: $7,000 per year
- Senior and 5th year: $7,000 per year
3. Federal Direct PLUS Loan: A “non-need-based” loan available to graduate and professional students and to parents with a dependent undergraduate student(s). So essentially, this opens access to additional resources beyond what a student is normally eligible to receive. You can borrow up to the Cost of Attendance (COA) minus any other aid received and with a PLUS loan you’re responsible for paying all interest which begins to accrue as soon as the loan is disbursed at a rate of 7.9% fixed. To be eligible for the Federal Direct PLUS loan, you must not have a negative credit history. For graduate and professional students, the principal may be deferred as long as you are in school. For parent borrowers, the first payment is generally due within 60 days after the loan is fully disbursed.
4. Federal Perkins Loan: The Perkins program is administered by your school’s financial aid and/or business office and provides student aid funds at a fixed 5% interest rate. Eligibility is based on financial need and the loans must be repaid to your school after you have completed the 9 month grace period. One important thing to note is that not all schools participate in the Perkins program. If you want to find out if your school participates in the Federal Perkins Loan Program, leave us a comment here, message/comment on our Facebook page, or with Twitter you can tweet with “@uheaa” in the body and we’ll find out for you right away! (Perkins loans also have some forgiveness options, depending on what career you choose to pursue after college. Get more information here.)
5. Private or “Alternative” Loan: This type of loan is usually administered by a bank or credit union and eligibility requirements are determined by each private loan provider/lender individually. With this method, it is highly recommended that aid should only be borrowed if you have absolutely no federal aid eligibility or other options. You can always check with your financial aid office to see if they have recommendations to providers/lenders with low interest rates or do some research to find the best option for your situation.
(Need a little more help with higher education lingo? Check out our “Higher Ed Dictionary”)
I hope this entry was helpful to you! Of course, if you still have any questions on anything like financial aid, scholarships, higher education, or anything on how to plan, prepare and pay for college, you can always refer to any of our informative blogs, uheaa.org, the UHEAA Facebook & Twitter pages, or just leave us a comment right here and we’ll get you an answer for you!