When scholarships and grants aren’t enough to cover your college costs, student loans can help you fill in the gaps and provide the remaining financial aid you need.
Student loans come in two principal varieties: government-issued federal student loans and non-federal private student loans.
FEDERAL STUDENT LOANS
Federal student loans are issued by the U.S. Department of Education to help students pay for college as well as post-baccalaureate graduate studies. Federal student loans are available in varying loans amounts to both undergraduate and graduate students and can be issued both with and without regard to financial need.
Most government student loans don’t require either a credit check or a co-signer, although there are some graduate student loans that are credit-based and will require you to have an acceptable credit history.
Federal college loans are also available to qualifying parents of undergraduate students.
Federal education loans can be either subsidized or unsubsidized:
- With subsidized student loans, the government will cover your interest charges while you’re in school or in an authorized period of deferment (during which your student loan payments are postponed).
- With federal unsubsidized student loans, although you won’t have any payments due while you’re in school or in an authorized period of deferment, interest charges will continue to accrue. Once you need to begin repaying your unsubsidized student loans, the accrued interest will be added to your principal loan balance and capitalized, meaning you’ll now be accruing interest charges on the previously accrued interest, as well as on your original loan balance.
Undergraduate Student Loans
There are two types of federal college loans for undergraduates: Perkins loans and Stafford loans. Both loans require that you fill out the FAFSA in order to be eligible. There’s no credit check or co-signer required for either Stafford student loans or Perkins student loans.
- Perkins student loans are awarded to eligible low-income students. Perkins loans carry a fixed interest rate of 5% and are available in loan amounts of up to $5,500 for each year of your undergraduate studies. Perkins student loans are subsidized loans.
- Stafford student loans are awarded both with and without regard to financial need. Financially eligible undergraduates will qualify for subsidized Stafford loans. Unsubsidized Stafford loans, on the other hand, are awarded without regard for financial need.Subsidized Stafford student loans carry a fixed interest rate of between 3.4% and 6.8%, depending on when your loan was issued to you, and are available in loan amounts of up to $5,500 a year, depending on your year in school.Unsubsidized Stafford student loans carry a fixed interest rate of 6.8% and are available in loan amounts of up to $12,500 a year, depending on your year in school and on whether you’re financially independent or a dependent of your parents.
Graduate Student Loans
There are three types of federal graduate student loans: Perkins loans, Stafford loans, and Grad PLUS loans. All three federal graduate loan programs require that you fill out the FAFSA in order to be eligible.
There’s no credit check or co-signer required for either Stafford graduate loans or Perkins graduate loans. Grad PLUS loans, on the other hand, have modest credit requirements and will require you to undergo a credit check. If you can’t qualify on your own for a Grad PLUS loan, you may need a creditworthy co-signer.
- Perkins graduate student loans are awarded to eligible low-income graduate students and are available in loan amounts of up to $8,000 a year. Like undergraduate Perkins loans, Perkins graduate loans carry a fixed interest rate of 5%.
- Stafford graduate student loans, like undergraduate Stafford loans, are awarded both with and without regard to financial need. Financially eligible graduate students will qualify for subsidized Stafford graduate loans. Unsubsidized Stafford graduate loans are awarded without regard for financial need.All Stafford graduate student loans, both subsidized and unsubsidized, carry a fixed interest rate of 6.8%. Subsidized Stafford graduate loans are available in loan amounts of up to $8,500 a year, while unsubsidized Stafford graduate loans are available in loan amounts of up to $20,500 a year.
- Grad PLUS graduate student loans are designed to cover up to 100% of your cost of attendance and are awarded without regard to financial need. Grad PLUS loans are unsubsidized and carry a fixed interest rate of 7.9%.
Federal parent loans, known as PLUS loans (“Parent Loans for Undergraduate Students”), are available to qualifying parents of undergraduate students. PLUS loans have modest credit requirements and will require your parent to undergo a credit check. Parents who don’t qualify for a PLUS loan may obtain a creditworthy co-signer in order to help them qualify.
- PLUS parent loans are awarded without regard to financial need in loan amounts that will cover up to 100% of the student’s cost of attendance. PLUS loans are unsubsidized and carry a fixed interest rate of 7.9%.
PRIVATE STUDENT LOANS
Private student loans are credit-based loans issued by banks and private lenders rather than by the federal government. Private student loans are available for both undergraduates and graduates, as well as eligible international students and continuing education students.
Qualifying For A Private Student Loan
Although you don’t need to fill out the FAFSA in order to qualify for a private student loan, as you do for federal student loans, you will need to undergo a credit check. You may need a creditworthy co-signer in order to qualify.
And in most cases, even once you’re approved for a private education loan, your school will need to certify the loan — essentially, letting the lender know that you do, in fact, need a private student loan and approving the loan amount you’ve applied for — before the student loan money will be disbursed. In the case of school-certified private student loans, the funds will generally be sent to your school rather than directly to you.
(Keep in mind that although private lenders themselves don’t require the FAFSA from applicants for private student loans, your school may require that you use your federal financial aid options — which do require you to file a FAFSA in order to be considered — before your financial aid office will certify a private loan for you.)
Private Student Loans Vs. Federal Student Loans
Private student loans typically carry variable interest rates, unlike federal college loans, which are all fixed-rate loans. Private student loans also generally come with less-flexible repayment options and fewer built-in borrower protections than federal loans.
Because private student loans can end up being pricier and riskier than federal student loans, you should make sure to take advantage of all your federal financial aid options before you turn to private loans.
If, after scholarships, grants, and federal college loans, you still have school expenses to meet, private student loans may be able to provide the additional education financing you need.