So, you’re trying to line up funding for your college tuition and related expenses, and there’s no question that you’re going to have to borrow money. But you’re in the dark in terms of what kinds of student loans are available and what would be the best fit. Well, you’re not alone. Among the Class of 2019, 69% of students took out student loans. To help you, let’s look at how many types of student loans there are, and what they involve.
What are Student Loans?
Student loans are kinds of loans that aim to assist students in funding their post-secondary education. In addition to tuition, that includes books and supplies, plus living expenses. You must pay these loans back, with interest.
How are Student Loans Different from Grants and Scholarships?
The chief difference is that, because you aren’t borrowing money, grants and scholarships don’t require repayment. In fact, they are given to you as gifts.
How Many Student Loan Types are There?
The answer? Three: federal, private and student loan refinance, the latter once you’re no longer a student.
Can You Tell Me About Federal Student Loans?
Provided by the federal government, these loans typically offer fixed rates, the ability to borrow without a co-signer, and flexible pay-back plans such as extended and income-based repayment.
These types of federal student loans are direct subsidized and direct unsubsidized, federal direct PLUS loans, and federal direct consolidation loans.
- Direct subsidized. If you’re an undergrad and can show financial need, a subsidized Stafford loan might be for you. You will not be required to pay interest on the amount you borrowed while enrolled in school at least half-time and for six months following graduation or falling below half-time enrolment.
- Direct unsubsidized. Both undergraduate and graduate students can apply for these, independent of financial need. However, you must pay the interest that accrues while you’re in school. If you don’t, said interest will be added to the loan balance.
- Federal direct PLUS. Grad PLUS and Parent PLUS loans are for grad students and parents of dependent undergraduates. Because such loans aren’t subsidized, interest will begin accruing once disbursement is done. However, you can put off repayment while you’re in school and for six months following graduation.
- Federal consolidation. These loans let you meld multiple federal student loans into just one to simplify repayment or change lenders.
What About Private Loans (and Refinancing)?
You get these loans from a private lender such as a bank or credit union. Some non-bank institutions and state loan agencies offer them, too. While there are fixed as well as variable interest rates, you might have to come up with a co-signer if your credit file is thin or if your earnings are anaemic. You must pay interest on these loans.
What you wind up paying in interest depends on factors, including the loan term, how much you borrow, your loan’s interest rate, and whether the loan is subsidized or not. You can lower how much you shell out in interest by refinancing your loan to save cash. What is refinancing? It’s when you take out a new loan with a better interest rate to pay for your current loan. It’s a popular strategy.
Now that you know how many types of student loans there are and what they’re about, you can choose the best loan type for you. If you go with private loans, continue signing on with Juno to get the best interest rates possible.
Image Credits: Leon Wu