Student Loans Decoded – No Boring Jargon
There are three types of student loans and the one that’s best for you will depend on several factors, including what degree you’re pursuing, where you’re going to school, and whether you’re still in school.
Federal Student Loan
For most students, the best student loans are the ones you get through the U.S. Department of Education by filling out the FAFSA. They include:
- Direct Subsidized
Direct subsidized loans are awarded on a need basis. They are the best loans because the government pays the interest while the student is in school.
- Direct Unsubsidized
Most undergraduate students are eligible for direct unsubsidized loans. Interest accrues while the student is in school, and many payment plans are available when the loans become due.
- PLUS Loans
Plus loans are available to graduate students and parents of undergraduate students. Unlike Direct loans, PLUS loans require a credit check. They also have higher interest rates.
Private Student Loans
When federal student loans aren’t available or the amounts aren’t enough, you can tap into private student loans through several lenders that specialize in these loans.
The following private student loans are available:
Bad Credit
Federal student loans are your best bet for no credit because they don’t require a credit check. This is a viable option for students who don’t qualify for federal aid.
Cosigner Loans
PLUS federal loans enable parents to take out student loans for their child’s education, but cosigner private student loans are an option if a PLUS loan isn’t available.
Institutional Loans
Some schools offer their own student loans. This is especially true for private schools where tuition exceeds the amount that can be awarded through federal loans.
Graduate Student Loans
Law and medical school students can get federal loans, but because law and medical schools are so expensive, they may need a private loan to bridge the gap.
Income Share Agreements
The payback for these loans is based on income percentage. Before taking one of these, compare to federal student loans to see which on is better for you.
International Student Loans
Students studying in the U.S. from other countries aren’t eligible for federal student loans, so private loans targeted to international students could be a good option
State Loan Programs
Some states offer programs similar to federal student aid, but they work more like private student loans.
Student Loan Refinance
If you find yourself paying on private student loans with less than favorable terms, you can refinance them. It’s usually not a good idea to include federal loans in the deal since you lose the protections that come with federal loans once you refinance them with a private company.
Why Choose a Private Student Loan?
In most cases, a federal student loan is a better deal for the average student.
Federal student loans come with several perks, including:
- Subsidized interest for students with financial need
- Lower interest rates
- Generous deferral plans
- Income-driven plans for low-income students
- Loan forgiveness programs
Here are some reasons why you may need to apply for private student loans.
- The cost of your tuition far exceeds your federal student loan award amount
- You’ve been convicted of certain crimes, which makes you ineligible to receive federal student aid
- You are attending a U.S. school but are not a U.S. citizen
How to Compare Private Student Loans
If you’ve determined a private student loan is best for you, compare these factors to find the best loan.
Interest Rates
While usually higher than federal loans, an excellent credit report could land you a good rate.
Payment Terms
If you need low payments, look for lenders that allow up to 20 years to pay off a student loan.
Loan Amounts
Some lenders let you borrow only the amount needed for your tuition, but if you need money for living expenses while you’re in school, look for a lender that lets you borrow for that.
Origination Fees
These fees aren’t unusual, but you can save quite a bit of money by shopping around for the lowest fees.
Rate Discounts
You may be able to get a lower rate by opting for automatic payments.
