Types of Student Loans
When it comes to college, it is important to learn more about the different student loans available on the market.
The Two Types of Student Loans
There are two major types of student loans: private loans and federal loans, both of which rare available below regular interest rates. In the United States, the federal government assigns $50 billion to the student loan program. Parents can get up to $2500 federal tax credit on interest paid over any period of time.
Loans and Tax Deductions
Best of all, tax deduction applies equally, whether parents or students are the loan takers. In overall terms, student loans are available from private lenders, state governments, but more commonly directly through colleges and high schools. The most popular student loans are Direct Loans, FFEL Stafford loans, and Federal Perkins Loans, offering diverse advantages according to which one you are considering.
The following loans are similar in that they are all available to both undergraduate and graduate students; however, they differ in the following ways:
- Federal Perkins Loan: A low-interest loan, which means rates remain at 5% for the loan term
- Direct and Stafford Loan: Has a non-fixed interest rate, and can be either subsidized or unsubsidized. You must be a regular student enrolled in an eligible education program for at least half the time, although other eligibility requirements apply.
- Federal Perkins loan: The application is evaluated, since this type of loan is intended for students with financial need. This loan is made up of funds provided by the government--and a share contributed by the college, which becomes the lender--meaning the students must repay the loan to the college.
For FFEL Stafford loans, it is the government who guarantees their funds, so parents or students do not need collateral when applying for these loans. Students' household income is what rules the assignment of a subsidized or unsubsidized loan in this case. When a student is eligible for a subsidized loan, the government covers the interest for the starting and grace period before repayment begins.
There is however, another loan that is not directly intended for students, but for helping parents to pay their children's college fees.
- Parent Loan for Undergraduate Students (PLUS): Best known as a Federal PLUS Loan: intended for parents of undergraduates in order to enable them to pay for tuition, serving as a tax relief as well. With a Federal PLUS loan, parents can borrow up to the total cost of their children's education.
Similar to the Perkins Loans, the college must approve the parents who want to benefit from this loan with flexible repayments, and no payment of the debt for up to 4 years. Although parents with bad credit or poor credit can apply, the drawback is that any grant or financial aid awarded is subtracted from the total amount of money borrowed.
It is important to know that you have many options to finance your education, so be sure to investigate the many types of loans available for you!