A Guide to Understanding the Many Types of Student Loans



The types of loans available to students for college seem confusing, because most students have no prior knowledge of them until they need one. College loans can be broken down into categories. All student federal loans require an applicant to fill out the free application for federal student financial aid, commonly known as FAFSA.

Federal Pell Grant

While Pell Grants are not loans, the financial aid is worth mentioning because qualifying students do not have to repay the amount awarded. Students receive Pell Grants based on the amount of expected family contribution. Pell grants are the best form of financial assistance, but qualification can be difficult.

Federal Perkins Loan

Fewer students qualify for a Perkins Loan, because there must be an exceptional financial need. There are limited funds for the program, so the amount of most loans is low. Perkins has a low interest rate with repayment not due until after graduation, a student drops below half time status or drops out school.

Subsidized and Unsubsidized Stafford Loans

On a subsidized Stafford loan, the Federal Government pays the accrued interest until after graduation, or the student drops below half time status or drops out of college. Subsidized Stafford loans are long term and awarded based on financial need.

An Unsubsidized Stafford Loan bases approval on credit scores and college costs. They are long term, low interest loans. Interest begins to accrue after disbursement and continues until repaid in full. On an Unsubsidized Stafford Loan, the total amount of interest is the responsibility of the borrower.

Parent Plus Loans

Parents of a dependent college student may apply for a Parents Plus Loan. Parents qualify for this loan based on credit history and the cost of college attendance. Repayment usually starts shortly after the total dispersal of the loan.

Alternative or Private Loans

Private loans are available to students who do not qualify for the federal government loans or for students whose loans were not enough to cover expenses. Private lending institutions offer alternative loans by providing college loans to students in need.

Interest rates vary from lender to lender, so shop around before taking out a loan. A student may be able to get a lower interest rate if they have a high credit score, have a co-signer or use automatic debit for repayment. Repayment is customary after loan dispersal, but repayment options are at the discretion of the lending institution.

Of course whenever you look at going in debt for a large sum you should always look at the pros and cons and be aware of all the loan details to avoid unpleasant surprises later down the road. For more information paydayloans.org.uk offers a variety of financial advice and tips in their blog.