Student Loans Explained

When their savings accounts falls short, or if scholarships can not be found, that's when most students rely on a loan to help pay for college!

About the time you are applying to college you should submit a FAFSA form. The colleges you apply to use the information on your FAFSA to determine what kind of loans you qualify for. There are two broad categories of student loans: subsidized and unsubsidized. If you decide to take out a student loan, learn how to minimize your loan payments.

Federal and Private Student Loans

Students loans are the most common form of financial aid. You're practically guaranteed to get a student loan if you apply. The federal government will pay the interest on some loans, and you may not need to make payments until after you graduate. Consider applying for a private student loan if you need additional financial aid to cover the costs of college.

Subsidized Student Loans

Subsidized loans are a desirable form of student loan for several reasons. The federal government pays the interest on your loan while you are in school, and during a six month grace period after graduation you do not need to begin repaying the loan. Once you finish school, the interest rates are low.

The financial aid office can guide you through the process of accepting and receiving a subsidized loan. Two typical subsidized loans are the Stafford and the Perkins. These two loans are quite similar, except that the Perkins loan is designed for students with exceptional need and has a lower interest rate (5%) than the Stafford loan (6.8%) and a longer grace period before you must start paying back the loan.

Unsubsidized Student Loans

Unsubsidized student loans are still useful because they allow students without sufficient savings or income to cover the costs of college. These loans usually have higher interest rates, no government subsidy of interest while you are in school, and may require that you start paying back the loan immediately. You may apply for an unsubsidized Stafford loan. To do so, you must submit a FAFSA form. The financial aid office at the college you are attending can help you with the process.

An alternative unsubsidized loan is a private loan. You can get a private student loan from either the college you are attending or from a major financial institution, such as Sallie Mae. Private student loans can have higher interest rates than unsubsidized federal loans, but the exact terms depend upon your credit history and payment plan. If you take out a private student loan learn how to minimize your loan payments.