Student Loans Don’t Have to Be Confusing
Let’s get one thing clear right up front. The federal government has not taken over the entire student loan industry. What the federal government HAS done is taken over the administration and disbursement of all federally funded student loans; a process that was previously divided between the government and the student loan providers.
Student loans are truly loans and you are responsible for repayment. When you begin to repay these loans and how interest accrues on the money you’ve borrowed varies by type, so it is important to understand the loans that are available and the differences between them.
Student Loan Overview
- Student loans fall into two main categories:
> Government Loans
- Stafford Subsidized Loans
- Stafford Unsubsidized Loans
- Perkins Loans
- PLUS Loans
- State Sponsored Loans
> Private Loans
- Dedicated Loan Providers
- Commercial Financial Institutions
- A Recommendation on Private Loans
Stafford Subsidized Loans
Stafford Subsidized Loans require NO payments and accrue NO interest while you are attending college. The application for this loan is the Free Application for Federal Student Aid (FAFSA) and the government uses this form to determine both your eligibility for a Stafford Subsidized Loan and the amount for which you qualify. You need to sign a Master Promissory Note (MPN) when borrowing money as part of this program.
Stafford Unsubsidized Loans
Stafford Unsubsidized Loans require no payments but do ACCRUE interest while you are in college. Again, the application for this loan is the FAFSA, the government determines your eligibility, and you will sign a Master Promissory Note (MPN) if you borrow money under this program. You will typically be awarded the maximum allowable annual amount for an unsubsidized loan. If you also qualify for a subsidized loan, then the unsubsidized amount will be decreased so you don’t exceed the annual limit.
Perkins loans are very similar in make up to Stafford Subsidized Loans and require NO payments and accrue NO interest while you are attending college. The application for this loan is the FAFSA, as well, but your eligibility for a Perkins Loan is determined by both the government and education institution.
PLUS Loans (PLUS is an acronym for Parent Loans for Undergraduate Students) are credit-based loans and are in the parent’s name, not the student’s name. You must apply for a PLUS loan and be approved through a typical loan application process. The applications are available from the colleges. If the parent is not approved for a PLUS loan, then the student will qualify for a higher Stafford loan limit.
State sponsored loans
State sponsored loans vary widely from state to state. Some states have them, others do not. Check with the college you have applied to about any possible state loan programs.
There are several dedicated student loan companies which provide private education loans to students. Some of the bigger names are SallieMae and NelNet. The terms and conditions on these loans vary by provider.
Commercial Financial Institutions
Contrary to belief, there is still a vibrant student loan market out there. Companies like Discover, US Bank, Wells Fargo and Citibank have dedicated student loan departments or programs should you need some additional money to attend college. Again, the terms and conditions associated with these loans vary by provider.
A Recommendation on Private Loans
You may need to apply for a private loan to secure enough money to attend college. However, the key is to borrow only what you need in order to go to school. In order to limit what you borrow from private institutions, you need to fully understand what your education is going to cost and exhaust all your other options first. Only after you know specifically how much you will need to borrow do we recommend you pursue a private loan.