There are two main types of student loans for undergraduate students – federal loans and private loans. Federal loans are either federally funded or federally backed (or insured) student loans.
Federal Perkins Loans:
- Taken out in the student’s name
- Fixed 5% interest rate.
- Maximum award of $4,000 per undergraduate year.
- School-awarded.
- Very limited availability.
Federal Stafford Loans:
- Taken out in the student’s name.
- Are usually borrowed through private lenders.
- The student must be enrolled at least half-time.
- Interest rate is fixed at 6.8% for unsubsidized Stafford loans for undergraduate student; 6.0% for subsidized Stafford loans for undergraduate students only; 6.8% for both subsidized and unsubsidized Stafford loans for graduate students for the 2008-2009 academic year.
- Award limits are based on the student’s year in school and dependency status.
- Repayment normally starts six months after leaving school (or attending less than half-time).
- There are two types of Stafford Loans - subsidized (for which you must demonstrate financial need and the interest is paid by the federal government while you are in school) and unsubsidized (which is not based on need, but you are responsible for all the interest that accrues).
Federal PLUS Loans (Parent Loans for Undergraduate Students):
- The student must be a dependent, undergraduate.
- A credit check (an inquiry into credit history and credit rating) is required.
- You do not have to show financial need to qualify.
- Can borrow up to the total cost of attendance, minus any other aid you receive.
- The loan is not subsidized (the government pays no interest).
- Repayment normally starts 60 days after full disbursement of the loan. However, some lenders may enable borrowers to defer payments while the student is enrolled.
Private Loans:
- Taken out in the student’s name, usually with the parent as a co-signer, or in the parent’s name.
- Are borrowed through private entities, banks, credit unions or lending companies.
- Interest rates can vary.
- Can borrow up to the total cost of attendance, less other financial aid.
- Interest can be capitalized (added to the loan principal) more often, increasing the amount of money you ultimately are charged for borrowing.
- Approval and terms for private loans are based on credit history. If your rating is bad or non-existent, you might need a co-signer to qualify. Poor or minimal credit may also result in a higher interest rate on your loan.
Legal guardians may not borrow a PLUS loan. Private loans are an option for credit-worthy individuals or majority age willing to take on the financial responsibility of the loan.
The cost of attendance (COA) is a number (generally a yearly figure) that is designed to help summarize the various costs of attending a school that takes into account
- tuition and fees
- on-campus room and board (or an allowance for these amounts for off-campus students)
- allowances for books, supplies, transportation, loan fees, and if applicable, dependent care,
It also generally includes various miscellaneous and personal expenses including an allowance for a purchase or rental of a personal computer and can also include additional costs related to a disability.
Most schools publish the COA annually in brochures and online college search sites, so it may help to check with some of these resources. Additionally, if you have unusual circumstances which have higher costs, it might help to discuss these with the financial aid office.
Parents may be interested in the federal PLUS loan, the "Parent Loan for Undergraduate Students." PLUS is a federally-backed loan with a low fixed interest rate that parents can take out in amounts up to the cost of attendance, less other aid received. Parents may also access a Private Loan (no involvement of the federal government), either as a borrower or as a co-signer with the student borrower. Go to the Parent section to view those loan options.
No, the PLUS loan does not require completion of the FAFSA.
However, filing the FAFSA may allow for other aid sources (such as Stafford or Direct student loans) to be included in the financial aid package.
Understanding Education Loans
Education loans are used expressly for paying college costs such as tuition, room and board, and other expenses. There are several types of education loans, depending on the type of student for whom you are borrowing.
For Parents of Undergraduate and Graduate Students
- Federal loans in the student's name, such as Perkins and Stafford Loans. These are backed by the U.S. Government and feature low, fixed interest rates. Federal loans require the family to fill out the FAFSA (Free Application for Federal Student Aid). Remember to complete the FAFSA no matter what. Nearly every student will be eligible for a Stafford Loan, regardless of need. This is a very low-cost loan that should be used before turning to private supplemental borrowing. Perkins and Stafford Loans are available in limited borrowing amounts, so students and their families often need to find funding from other sources to supplement federal loans.
- Private student loans are taken out from banks, lending companies or other private entities, in the student's name or in the name of a parent or sponsor, usually with a co-signer. Private student loans have variable interest rates and often allow borrowing up to the full cost of attendance, less other aid received.
- PLUS (Parent Loan for Undergraduate Students) are federal student loans for parents of undergraduate students. PLUS loans have a fixed interest rate and are available to cover up to the full cost of attendance, less other aid received.
- Home equity loans are basically a second mortgage where the applicant's residence is used as collateral for a secure line of credit based on the available equity in the home. More about home equity loans.
How to Use the Student Loan Comparison Tools
Save time, energy and money by comparing multiple student loan options from a variety of leading lenders. Simply enter the amount you need to borrow and a little bit about the student, when the student loans are needed, and where your student goes to school to see a customized list of student loan options.
What to Look for in a Student Loan
Use the comparison tools on this site to consider all of the costs of a student loan, including fees and rates. Students should always borrow the most they can in federal loans first (such as Perkins, Stafford and PLUS) and then compare private student loans for the best rates, fees and costs.
Examine all of the attributes of each loan, such as:- the annual percentage rate (APR)
- the total cost of the loan
- the monthly payment
- the loan's borrower rewards
- student loan deferment options
Borrowers should also consider their own credit history and credit rating - little or no history or a low credit score means a student borrower will most likely need a co-signer to be qualified for a private student loan.
FAQs
What are the different types of student loans available for my child?
There are two main types of student loans for undergraduate students – federal loans and private loans. Federal loans are either federally funded or federally backed (or insured) student loans.
Federal Perkins Loans:
- Taken out in the student’s name
- Fixed 5% interest rate.
- Maximum award of $4,000 per undergraduate year.
- School-awarded.
- Very limited availability.
Federal Stafford Loans:
- Taken out in the student’s name.
- Are usually borrowed through private lenders.
- The student must be enrolled at least half-time.
- Interest rate is fixed at 6.8% for unsubsidized Stafford loans for undergraduate student; 6.0% for subsidized Stafford loans for undergraduate students only; 6.8% for both subsidized and unsubsidized Stafford loans for graduate students for the 2008-2009 academic year.
- Award limits are based on the student’s year in school and dependency status.
- Repayment normally starts six months after leaving school (or attending less than half-time).
- There are two types of Stafford Loans - subsidized (for which you must demonstrate financial need and the interest is paid by the federal government while you are in school) and unsubsidized (which is not based on need, but you are responsible for all the interest that accrues).
Federal PLUS Loans (Parent Loans for Undergraduate Students):
- The student must be a dependent, undergraduate.
- A credit check (an inquiry into credit history and credit rating) is required.
- You do not have to show financial need to qualify.
- Can borrow up to the total cost of attendance, minus any other aid you receive.
- The loan is not subsidized (the government pays no interest).
- Repayment normally starts 60 days after full disbursement of the loan. However, some lenders may enable borrowers to defer payments while the student is enrolled.
Private Loans:
- Taken out in the student’s name, usually with the parent as a co-signer, or in the parent’s name.
- Are borrowed through private entities, banks, credit unions or lending companies.
- Interest rates can vary.
- Can borrow up to the total cost of attendance, less other financial aid.
- Interest can be capitalized (added to the loan principal) more often, increasing the amount of money you ultimately are charged for borrowing.
- Approval and terms for private loans are based on credit history. If your rating is bad or non-existent, you might need a co-signer to qualify. Poor or minimal credit may also result in a higher interest rate on your loan.
- What are the different types of student loans available for my child?
- I'm the legal guardian of an undergraduate student. What type of student loan can I take out for her/him?
- What is the cost of attendance (COA)?
- What's a Parent PLUS loan?
- Do I have to file the FAFSA before I apply for a PLUS loan?
Financial Aid Alerts
Stafford Loan Rate Change!
Beginning July 1, the federal government has announced a reduction in the current subsidized Stafford Loan interest rates.
Change in Stafford Loan rates »
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