Types of Student Loans – How to Compare Student Loans

How many types of student loans are there? Well, it can seem like thousands, but in reality there are only 3 main types of federally guaranteed student loans. Federally guaranteed loans are the type you'll want, for many reasons, not the least of which is because they can be consolidated in the future without providing complicated documentation or putting up any collateral. In addition, they are easier to get if you have few resources, and really, why else would you be trying to get a loan in the first place? Here are the types of student loans and how you can compare them.
If you felt like you spent more time in you college's financial aid office than in class, you're not alone. Federal spending on student loans has increased by over 40% since the start of the decade. It now sits at $23,000 per U.S. household. Think about that the next time you think the feds are spending nothing on education. Sadly, that has barely kept pace with the increased costs of getting a college education. But federal spending for student aid of all types for parents of students, including loans, has jumped by, now sit down, 400% since 2001! If you're looking to help increase these numbers, here are the types of loans you'll be going after.
The 3 types of federally guaranteed student loans are the following: Stafford Loans, PLUS loans, and Perkins loans. Here's how they stack up.
Types of Student Loans
PLUS Loans - These loans are for the parents of eligible, dependent, students. Who are exactly are these eligible students? To be eligible for such a loan, you must be enrolled at an approved institution of higher learning, in an approved program, on at least a half time basis. The exception to this rule are that Graduate student are now eligible to receive PLUS loans. PLUS loans are provided through both the Family Friendly Education Loan (FFEL) program and the Federal Direct Student Loan program. As the name suggests, direct loans are available directly through the U.S. Department of Education, while FFEL loans are obtained from an approved private lender, such as bank. The parents will need to submit to a credit check to receive PLUS loans through either program. If the parents have marginal credit, they can use a cosigner to help get the loan approved.
A student can get up to the cost of school attendance, less other financial aid less other financial aid received for the term. It's easy to apply, simply submit the appropriate application. These are available from your college's financial aid office, or in the case of an FFEL loan, they can also be picked up at the lender's location. A completed FFEL application and promissory note will need to be returned to the school, who is also responsible for filling out a portion of the application. Once approved, there will be a check sent directly to the student's school.
The responsible parties are required to begin repayment of PLUS loans within 60 days of the time the check is sent to the school. Sorry no grace period, those responsible have to begin paying of the loan long before the efficacy of said payments are determined. The interest on these loans is fixed for new loans, although it was variable in the past. Currently, the rate sits at 7.9% for direct and 8.5% for FFEL loans. Prior to 2006, the interest rate was variable and re-indexed each July1st.
Perkins Loans – Perkins loans are for both undergrads and graduate students who can demonstrate exceptional financial need. (Really, don't all students have an exceptional need for money?) Perkins loans are made by, and repaid to, the student's school. Unlike with PLUS loans, there is no half time enrollment requirement for Federally guaranteed Perkins loans. Undergraduate students are eligible for up to $4,000 per year, while graduate students can get up to $6,000. The total available for the student's academic career is $40,000. Not all institutions of higher learning participate in the Perkins Loan program. You'll have to check with your particular school to verify their participation. Currently the interest rate for Perkins loans is 5% and they can be repaid over a 10 year period (the repayment period is subject to the total loan amount).
Stafford Loans – Loans de Stafford are also available in two flavors, like PLUS loans. As in the case of PLUS loans, both are available through either the U.S. Dept. of Education (direct) or private lending institutions (FFEL) and are available for students attending school at least half time. The difference is that Stafford loans are for the students themselves, not their parents. As with PLUS loans, there is a 10 to 30 year repayment period for direct Stafford loans, but it's possible to get Stafford loans in either subsidized or unsubsidized varieties.
Subsidized loans are for students that can demonstrate financial need. On these loans the government pays the interest until either 6 months after the student graduates or until 9 months after the student drops below half time enrollment status. It is also possible to request a payment deferment for Stafford loans, if a student feels they are currently unable to begin repayment of their loan obligation.
Unsubsidized loans are available to students without the requirement to demonstrate financial need. However with an unsubsidized loan, the government will not pay the interest. If a student takes out loans in excess of their determined financial need, the loans beyond the amount of financial need must be unsubsidized loans. Effective on July 1st, 2007 the limits on Federally guaranteed Stafford loans are $20,500 ($8,500 subsidized) for grad students. For undergrads, the limits differ for dependent students and independent students. Independent students are eligible for $7,500, $8,500, and $10,500 in their 1st, 2nd and 3rd - 5th years, respectively. For dependent students, Stafford limits are $3,500, $4,500, and $5,500.