If you’ve been applying to college or graduate school, you’re probably been inundated with “special offers” of loans and information about all the different types.
But which one is right for you, if any? Would you be able to pay a little bit back during the school, or do you need to postpone all payments until after you graduate? Need a little money, or a small fortune?
Below is a general description of the different types of student loans available.
Federal Loans: The largest amount of federal loans are made through U.S. Department of Education, but there are also others made available through veteran programs or those for students going into specialized fields of study, like medicine or social work. Federal loans are either subsidized or unsubsidized.
Subsidized loans: made on the basis of need. After you fill out your FAFSA (Free Application For Student Aid – a one-shot form to be considered for various federal loans) the lender will determine your Estimated Family Contribution (EFC). If it’s determined that you qualify for a subsidized loan, the government will pay the interest on your loan while you’re in school, during the grace period after you leave school (six months) and if you qualify for payment deferment.
Unsubsidized loans: these differ in that you are responsible for the interest on the loan from the time it’s disbursed until it is paid in full. Borrowers can choose to pay the interest during school, or allow it to accrue and capitalize and be added to the amount you have to repay after school.
Many people find their costs can be fully covered by Federal Stafford Loans (subsidized or unsubsidized, depending on need) and/or Perkins Loans (subsidized) or other Federal options (like the Grad Plus, which is unsubsidized).
Private loans: made by private loan companies with varying interest rates and repayment options. These are based on your creditworthiness as opposed to your need for financial aid. They can sometimes compete with Federal loans on the interest rates, but depending on the credit of the borrower, can offer much higher amounts.
Emergency loans: sometimes made by the school you’re attending. These are usually for students who find themselves in dire need, are for a short time (usually 3-6 months) and have a fee along with a limited time for repayment.
Consolidation loans: private lenders can offer competing programs which will “bundle” your federal or other private loans into one loan, meaning there is only one payment every month. Consolidation loans may lower your monthly payments and lock in a beneficial interest rate, but they may also take away the benefits of a federal loan, such as the potential for loan deferment, forbearance or forgiveness under certain circumstances.