Facts About Loans For College Students

So you need help paying for college. What now?

Loans for college students are the most common type of financial aid. Unfortunately, loans are borrowed money and unlike scholarships and grants, they require repayment with accumulated interest. The repayment (or default) of student loans affects a person's credit rating, so it is important to be fully informed about different types of loans and repayment options before borrowing loans for college students.

The first step toward receiving financial aid for college is to fill out a Free Application for Federal Student Aid (FAFSA) through the U.S. Department of Education (U.S.D.E.). According to the U.S.D.E., the office of "Federal Student Aid plays a central and essential role in supporting postsecondary education by providing money for college to eligible students and families." Filling out a FAFSA is the initial step to receive assistance for funding a postsecondary education.

Subsidized vs. Unsubsidized

To determine interest repayment, student loans fall into one of two categories, either subsidized or unsubsidized. Subsidized loans are lent to students on a basis of great financial need, and for this reason, the federal government pays any interested accumulated the loan while the student is still in school or while repayment is deferred for an authorized reason. But students are solely responsible for paying any accumulated interest on unsubsidized loans.

Direct vs. FFEL

Two different programs within the U.S. Department of Education are responsible for disbursing loans to students. Direct Loans are part of the William D. Ford Federal Direct Loan Program and are issued directly from the U.S.D.E. so students repay these loans to the U.S.D.E. On the Other hand, FFEL Loans (Federal Family Education Loan Program) are insured by the federal government but disbursed through a private lender. Students repay these loans to the private lender.

Repayment Schedule

Repayment of loans for college students varies greatly, depending on factors like the total amount of money that a student borrowed, the length of time the student was enrolled in school and the student's income level after graduation. As a general rule, students have a grace period of six to nine months after they graduate or drop below part-time enrollment status before they must begin repaying their loans.

Types of Federal Loans for College Students

* Perkins Loans: these loans are lent to students demonstrating great financial need. Federal Perkins Loans are distributed through your school and must be repaid to your school within ten years.
* Stafford Loans: these loans are awarded on a basis of financial need and may be either subsidized or unsubsidized. Direct Stafford loans are disbursed to students by the U.S.D.E. and FFEL Stafford Loan disbursed through a private lender, like a bank. Loans are repaid to their respective lender.
* PLUS Loans: these are loans borrowed by a student's parent or legal guardian. PLUS loans can be borrowed to cover any remaining tuition costs that are not covered by other loans. All PLUS loans are unsubsidized and the borrower is responsible for paying all interest. Direct PLUS loans have a fixed interest rate of 8.5 percent, FFEL PLUS loans 7.9 percent.

If a student's federal financial aid award is not enough to cover the cost of college tuition and other expenses, loans are available through a variety of private lenders as well. Private loans often have higher interest rates and less flexibility when it comes to repayment, so it's important to research your options before borrowing loans for college students.

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