Everything You Ever Wanted to Know About Student Loans Part 1

ARTICLE TOPICS:

As someone who is still paying back her student loans, and in light of the pretty much constant media attention paid to student loans and student debt, we decided to publish a series of articles that would give readers an overview of everything you need to know about student loans but were afraid to ask.

Today's topic: Types of Student Loans

The main types of student loans are Federal Student Loans and Private loans.

Federal student loans come in two forms: Stafford loans and Perkins loans. There are also two different types of Stafford loans, Federal Family Education Loan Program loans and Direct loans.

Stafford Loans:

Federal Family Education Loan Program: These loans are provided by private lenders and but are guaranteed against default by the U.S. Government in order to keep interest rates lower.

Direct Loans: These loans are provided to students directly from the government.

In order to get a Stafford loan, you must fill out the FAFSA. All Stafford loans can be either subsidized or unsubsidized. With a subsidized Stafford loan, the government pays the interest as long as you're in school. With an unsubsidized Stafford loans, the borrower pays all the interest, although you can defer payments until after you graduate. All Stafford loans have a fixed 6.8% interest rate.

Perkins Loans:

**Perkins loans are available to students who demonstrate an exceptional amount of financial need. The school itself lends students the money, drawing from a pool of funds provided by the government. The government also pays interest on the loan while the borrower is in school and during the 9-month grace period after the student has graduated or dropped below part-time enrollment levels. Perkins loans have a 5% interest rate.

Parents may also take out loans from the government to pay for their child's education. These loans, called Parent PLUS loans have a 7.9% interest rate and no borrowing limit. Borrowers must begin paying interest on the loan 60 days after the funds are disbursed.**

Private Student Loans:

Private Student Loans (also known as Alternative Education Loans) are offered by private institutions such as banks and are usually based on your credit score. Private loans are usually more expensive than federal student loans. However, for families that cannot cover all education expenses with federal loans, private loans are cheaper than credit card debt.

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