An Overview Of Different Types Of Student Loans

A student loan is also referred to as an education loan. It is a type of financial assistance that should be paid back with interest. In contrast, scholarships don’t need to be paid back. Very few students can manage to pay for higher education without some type of loan or financing.

Types of student loans

Student loans are offered in three principal categories and they are as follows:

  • Federal student loans: Stafford loansand Perkins loans
  • Parent loans: PLUS loans
  • Private student loans: School-channel loans and direct-to-consumer private loans

Federal student loans are available from either the Direct Loan (Ford Direct Student Loans) or the Federal Family Education Loan Program (FFEL). Federal loans are guaranteed by the government, but private lenders can also offer these loans. Federal education loans are more beneficial since these loans ask for a fixed and affordable interest rate. In order to request for a Federal loan, you’d have to fill out the FAFSA (Free Application for Federal Student Aid) form.

Federal regulation fixes the maximum interest rates and costs that lenders might ask for the federally-backed loan programs. Nothing stops a lender from charging smaller fees. Many student loan companies offer a range of student loan discounts to draw borrowers. Education loans offered by private and federal lenders are available with flexible repayment terms.

Private student loans are also known as alternative student loans. These loans are not insured by any government agency and are offered to students through banks or other types of financial institutions. You should think about a private student loan if federal loans, scholarships and grants aren’t sufficient for you. You might need to bring a cosigner to obtain such a loan.

PLUS loans are offered to parents of dependent students. The parent has to qualify a credit check.

Besides the three types of loans mentioned above, a fourth type is also available, which is called consolidation loan. This loan lets the borrowers combine all their loans into one for easy repayment. Peer to peer education loans are also available from some sources and it is considered as a nontraditional type of lending.

Rates and fees on education loans

Federal education loans are offered with fixed interest rates. On the other hand, private education loans carry adjustable interest rates. Consumers should know that private education loans ask for significant origination fees upfront. These fees escalate the actual cost to the borrower and lower the amount of money available for academic purposes.

Borrowing money for higher education is an important responsibility but college is always a smart investment for getting a promising career that helps you earn the best salary in the industry.

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