The Official Student Loan Primer

Written by Michael Bennet

While the Pell Grant can provide you with a substantial amount of money to put towards your college education, sometimes it just isn’t enough.

College tuition and other education related expenses are rising every year, and if you want to attend the school of your choice it is often customary to go into debt when you don’t have any other options.

This isn’t necessarily a bad thing as long as you are able to payback your debt obligations once you graduate, and many financial experts agree that going into debt when you are receiving a higher level degree is actually one of the situations that are appropriate in going into such debt.

Student Loan Basics

Most students who are willing to go into the red to pay for their college education end up taking out a variety of student loans, and while there are other loans and credit instruments that can feasibly pay for your educational expenses, these things aren’t particularly suited for a student who is attending college.

Student loans have been designed specifically for students who are going to be attending a higher college or university, and if you need additional money beyond the financial aid you receive by way of grants and scholarships, student loans can easily fit the bill if you are willing to go this route.

That being said, there are a number of different kinds of student loans, and it is important to have a firm understanding of what each type of loan can offer you if you want to limit your overall debt load, and pay the least amount of money you can towards interest and fees.

You have probably already heard of the two major kinds of student loans that are currently in existence, as federal student loans, and private student loans are the two major types of education loans that most students research when they want to get a college loan. There are many differences between these two types of student loans though, and before you plan out how you’re going to approach applying for these loans, it is critical that you compare and contrast what each has to offer you.

Federal Student Loans

First we have federal student loans, as this category of student loans is provided by the federal government and should be considered first before looking into private student loans. One of the great things about federal student loans is that you apply for them via same way you would apply for a Pell Grant.

This means that by filling out a FAFSA you can make yourself eligible for the variety of federal student loans that are available for that particular school year. The FAFSA is the government’s universal application for federal student aid, and by filling one out and submitting the application by the appropriate deadlines, you will be putting yourself into contention for both the Pell Grant, and federal student loan aid.

Not only are federal student loans easy to apply for, but they are also better loans to have when compared to private student loans. Federal student loans carry low interest rates, and very flexible repayment terms relatively speaking, and you can often delay ever having to make a payment for a federal student loan for several years even after you graduate via the large amount of deferment, and forbearance time you will be allocated with your federal student loan.

The primary downside to getting a federal college loan is that the actual amount of money you can receive is capped off in accordance with the specific federal loan type that you are able to obtain. This is not to say that you cannot get a large amount of aid via a federal student loan, rather it just means that it may be difficult to acquire a federal loan that can pay for all of your education related expenses up to the cost of attendance of going to your particular institution.

There are four major types of federal student loans, the Subsidized Stafford Loan, the Unsubsidized Stafford Loan, the Federal Perkins Loan, and the Federal PLUS Loan.

The PLUS Loan

The PLUS Loan is a federal student loan that must be taken out by your parents, and unlike the other three federal loans, can provide you with aid up to the cost of attendance of going to your particular institution.

PLUS Loans are somewhat based upon credit in that they require your parents to pass a credit check, or produce a credit-worthy cosigner to get an approval, and in this way they are different from the other three federal student loans that may be available to you.

Stafford and Perkins Loans

Both Stafford and Perkins Loans are not based upon credit, and these loans can be taken solely out by yourself, without the help of your parents, although you will have to provide information in regard to your parents when you complete the FAFSA if you are still considered to be a dependent.

Because the Stafford and Perkins loans are based upon credit, you can receive these loans regardless of your ability to demonstrate a significant credit history, or produce a credit-worthy cosigner. This means that you have a good chance at getting at least an Unsubsidized Stafford Loan just by filling out your FAFSA regardless of your credit situation. The Subsidized Stafford Loan is a bit tougher to get due to the fact that it is based heavily on need.

The Perkins Loan is almost the same way, only it is even more difficult to get when compared with the Subsidized Stafford Loan.

Overall these federal student loans can provide you with an enormous amount of funding for your college education, and if you were able to exhibit the appropriate financial need to become eligible for the Pell Grant, you should have a very high chance of receiving a substantial amount of aid by way of federal student loans if you are in need of such money.

Private Student Loans

Private student loans are much different than federal student loans because they are based upon credit, and because they are not provided by the federal government.

They are instead provided by independent private lenders that often have very little association with the federal government, and because of this it is critical that you shop around to see what various lenders can offer you when it comes to interest rates, fees, and repayment terms.

If you have no credit, or bad credit, you are going to have to produce a credit-worthy cosigner to get an approval from most lenders.

If you think that your credit history is suspect enough to warrant a denial, it is always a smart idea to have your cosigner lined up before you go ahead and look for a private student loan lender, as not doing so will only leave you disheartened and frustrated in the long-run.

Availability

The private student loan industry has contracted to a very high degree over the past few years due to the credit-crunch, and the overall down economy. This doesn’t necessarily mean that you cannot get a private student loan if you really need one, it just means that you are going to need to have all of your ducks in a row if you want to get a fast approval.

Don’t waste your time looking for a student loan without a cosigner if you have credit issues, as this is a “dead end” search that won’t yield any positive results.

Private student loans can still provide you with a tremendous amount of aid if you need it as long as you can satisfy the lender’s credit requirements, and you can often borrow up to your school’s cost of attendance if you need that amount of funding to attend college.

Be careful though, as private student loans can come with very high interest rates and fees, and are often approved without the provision of any sort of deferment, or forbearance time.