There is little doubt that going to college in America today is extremely expensive and those costs rise every year. Very few students and their families can afford to pay for college without financial assistance. For many students that means searching out grants and scholarships and certainly taking out at least (but often more) student loans.
The first loan options that students and their parents should explore are those offered by the federal government. There are several types of federal loans available including Perkins, Stafford, Parent PLUS, and Graduate PLUS Loans. All of these loans offer low fixed interest rates but they do vary in their terms Here is a brief run down:
- Stafford Loans – Stafford loans come with low fixed interest rates but lower borrowing limits than some other loan options so often students use them only as a secondary source of financing. There are two different types of Stafford Loan available. With a subsidized Stafford loan no interest accrues as long as a student is enrolled in college but these loans are needs based whereas an unsubsidized Stafford loan is not. Almost any student, regardless of income can qualify for an unsubsidized Stafford loan but interest does begin to accrue from day one.
- Perkins Loans – Perkins loans are issued directly through the school at which a student is enrolled but are generally considered hard to get as they are based on strict financial guidelines and usually only very low income students qualify.
- Parents PLUS Loans – PLUS loans are issued to the parents of students intending to go to college. They have higher borrowing limits than other federal loan options but a parent’s credit rating will have to be taken into consideration which is not an issue when students apply for a Stafford or Perkins loan. For all but the PLUS loans in order to apply for federal lions a student must complete a FAFSA (Free Application for Federal Student Aid)form every year. Doing so is not difficult these days as the entire process can be completed online.
Some students, especially those who want to attend private colleges that come with a higher price tag than their state counterparts, find that in addition to taking out federal student loans they still need to look for a private student loan to meet all their college expenses.
Private student loans are available from a number of banks and are available in amounts that are often higher than federal loans. These loans do not always come with a fixed interest rate and they are based upon the results of s credit check. Since few students coming out of high school have much in the way of a credit rating established it is usual for a parent to cosign for loan even though it is issued in the student’s own name.
If a student has to resort to taking out private student loans they should really only borrow the amount that they truly need to, as although the repayments will be deferred until a student is finished with school interest accrues from day one.