Types of Educational Loans
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Loading ...There are three types of educational loans available: student loans that include Stafford and Perkins, parent loans like PLUS loans and private student loans aka alternative student loans. Student loans are federal government loans whose rates are lower than private loans. Student loans are quite flexible with repayment terms and deferment solutions, not to mention that credit checks and collateral are not needed.
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Student Loans
are Federal student loans. They can be either subsidized or unsubsidized. Subsidized means the government pays the interest while unsubsidized means you have 6 months after grad to begin paying the interest. Stafford loan which is regarded as the main Federal loan has two variations: Federal Family Education Loan Program (FFELP) and the Federal Direct Student Loan Program (FDSLP). FFELPs are guaranteed by the federal government but come from banks and credit unions. FDSLPs aka direct loans are funded by the federal government but handled through “direct lending schools”. 2/3 of subsidized loans go to incomes of less than 50K, but all students are eligible for unsubsidized loans. You can apply for a Stafford loans by filling out the FAFSA form.
Perkins Loan is a subsidized loan with a 10 years repayment period, and a grace period of 9 months. The school is given a limited amount of funds by the federal government to distribute among its applicants. The limits are $5,500 per year for undergraduate and $8,000 for graduate students. Perkins loans are geared towards students in exceptional financial need and has better cancellation provisions than Stafford or PLUS.
PARENT PLUS loans
PARENT PLUS loans are federally funded loans that were for Undergraduates, but since July 1, 2006 graduate and professional students have been able to borrow too.
Repayment begins 60 days after funds are received and the term is up to 10 years Graduate students can have their payments deferred until they finish school, but no grace period is given. This loan can either be provided by private lenders and banks or directly from the government. In the case of undergraduates, parents apply for the loan to cover the reminder of the costs not met by their child’s already existing financial aid package. Parents are held responsible for any default on the loan whatever the personal agreement may be between parents and students.
PRIVATE EDUCATION LOANS
are not obtained by filling out federal forms. Your credit score will often determine your eligibility, the interest rates and fees you pay, but with a cosigner who has a high credit score the rates will be much lower. Private loans or Alternative education loans as they are also known, are another means by which students can pay the balance of their education that government loans did not cover. Private loans do cost more than federal loans but not as bad as credit card debt. It is wise to receive as much federal student loans as you can before turning to private student loans.
The following is a list of private lenders:
CONSOLIDATION LOANS
The last type of education loan is the consolidation loan. This allows borrowers to bundle most of their federal loans into one payment. If a student has different loans with different rates, the consolidated rate will be the weighted average of the loans being consolidated and rounded up to the nearest 1/8. Having to keep track of various loan payments can sometimes lead to missed or late payments and their penalties; by consolidating into one payment you reduce your risk for any type of default on your loans.
