Student Loans - Which Type is Which

Many use student loans, issued by the federal government and private institutions, to help fund college related fees, such as tuition and room and board. To apply for federal financial aid, the applicant must fill out and submit the Free Application for Federal Student Aid (FAFSA). The FAFSA, submitted annually by current and matriculating undergraduate and graduate students, determines need-based financial aid eligibility for loans, grants and work-study programs. If an applicant is deemed eligible for federal aid, then the student can receive federal grants as well as loans. Most federal government loans do not require credit checks or collateral.

Need-Based Financial Aid

Stafford loans, a federal loan issued and backed by the federal government, can help students pay for college. Stafford loans are usually dispersed and administered through the college. The maximum loan amounts dispersed for Stafford Loans vary based on the grade level of the student. If a student elects to use Stafford Loans to finance their college education, they will pay interest on the principal. The loan will either be subsidized or unsubsidized, depending on financial need. With subsidized Stafford loans, interest is paid by the federal government until the student graduates or separates from the college and the loan-repayment period begins. With unsubsidized loans, students pay the interest while they are in college, although students usually can defer payments until after graduation. If the student elects to defer payments until graduation, the principal will continue to rise. Repayment usually begins 180 days after graduation or separation from school.

Perkins loans, also administered and backed by the Federal Government, are awarded to students with special financial need. Under the Perkins Loan, the federal government pays the interests while the student attends school. Students can borrow up to $4,000 for each year of undergraduate study for up to 5 years. The amount the student receives depends on demonstrated financial need, the level of funding and cost of attendance at the participating school. The interest rate is set at 5% and the repayment period is 10 years.

Federal Work Study Program: Federal Work-Study program is a campus-based program, which is administered directly by the financial aid office of the college. Federal Work-Study provides hourly part-time jobs for undergraduate and graduate students with demonstrated financial need. Students can earn money to help pay education expenses, such as books and fees.

Non-Need Based Financial Aid

The government also provides non-need based financial aid to parents and graduate school students. The PLUS Loan program, a non-need based aid program, is offered to the parents of students enrolled at least half time in college at eligible institutions. For PLUS Loans, the parent must complete an application and promissory note, outlining terms of repayment. Parents must begin paying the loan after 60 days of disbursement. Additionally, the Grad PLUS program is now available for graduate and professional students, allowing students to borrow to finance their educations.

Credit-Based Loans

The student can apply for unsecured credit-based loans, if they did not receive enough money through the federal government. Private education loans, offered by private banks and financial institutions, are usually based on the applicant's credit score, which may mean that students will need a cosigner.

There are several ways a student and parent can pay for college. The federal government, along with private institutions, offers loan programs to help finance the rising cost of college, making college accessible to most students.

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