Student Loans

A financial necessity for most students today

While it would be nice to be able to pay for your education with your savings, a little help from your parents and maybe a scholarship or grant, the reality is that most students have to borrow money to afford a post-secondary education. Though it’s never fun to go into debt, don’t be afraid of getting a student loan. Think of it as an investment in your future.

Federal Student Loans

If you need to take out a loan to help pay for your education, the federal government should be the first source you look to. The government lends more money than any private organization, and the loans it offers are specially designed to minimize the financial burden placed on students.

In order to qualify for a federal student loan, students must complete the Free Application for Federal Student Aid, more commonly know as the FAFSA. The FAFSA must be completed at the end of every year and can be submitted starting on January 1 (it is recommended that you submit it as soon as possible). The government then reviews your FAFSA and sends you back a Student Aid Report (SAR) that notes all financial aid for which you and your family are eligible.

There are three basic kinds of federal student loan:

  • Stafford. This is the most popular student loan. Every student is eligible for an unsubsidized Stafford loan at any point in his or her college career, regardless of whether he or she can demonstrate financial need (although if you can demonstrate financial need, you may receive a subsidized Stafford loan). The amount that can be borrowed increases each year as you progress through college. The interest rate is fixed.
  • Perkins. Only students who can demonstrate financial need are eligible for a Perkins loan. The federal government provides colleges with a limited pool of money, and colleges are responsible for lending it to the students who need it most. Perkins loans have the lowest interest rate and fees of all student loans, but only up to $4,000 can be borrowed.
  • PLUS. The Parent Loan for Undergraduate Students, or PLUS loan, is unique because it’s for parents, not students. In order to qualify, parents must demonstrate financial need. The interest rate of a PLUS loan is higher than that of a Stafford loan, but a much larger amount can be borrowed.

The difference between subsidized and unsubsidized loans is very simple. In the case of subsidized loans, the government pays the interest while the student is in college. On the other hand, students must make all interest payments on an unsubsidized loan. In all cases, subsidized loans are preferable to unsubsidized loans.

Private Student Loans

In addition to federal loans, students can get loans from private sources such as banks or finance companies. These loans generally offer higher lending limits, but they also have higher interest rates. Some require a co-signer and a credit check. The leading private lender is the company Sallie Mae, whose Signature loan is the second most popular student loan after the Stafford. Citibank’s CitiAssist loan is also popular.

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