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Student Loans: Know the Difference

You may be college-bound.

Or, you may be a parent prepping for a soon-to-be emptier nest.

Either way, understanding different types of loans available to you or your child is essential to navigating the world of higher education—one filled with repayment plans and “adulting.”

Didn’t know that there were different types of student loans? Don’t worry, class at Quontic U is in session.

Federal Loans

The government provides federal student loans. The borrower typically does not require a co-signer or substantial credit score to receive a federal loan. Congress determines the interest rates of federal loans each year. These loans include helpful, protective aspects such as altering monthly payments in conjunction with monthly income. Loan forgiveness may also apply if the borrower decides to work in a public service field such as teaching.

To apply for any of the three types of federal student loans available, one must fill out the FAFSA, or Free Application for Federal Student Aid. Federal loans are distributed each semester, so it’s important to know how much additional funding may need every semester.

1. Subsidized
Subsidized loans are available for undergraduates only. A student is eligible for a subsidized student loan if they have some form of financial need determined by their college. The government pays the accruing interest on the loan while a student attends school, or is in a grace or deferment period. Once a student’s time in school, a grace period, or deferment period ends, the student will then be responsible for paying the loan plus interest.

2. Unsubsidized
Subsidized loans are available for both undergraduate and graduate students. The student does not need to prove that they have some form of financial need to obtain an unsubsidized loan. The student is responsible for paying the loan’s interest rate at all times.

3. PLUS Loans
PLUS loans are available to graduate students and parents of undergraduate students. They can be used to pay for some or all college fees that aren’t covered by other forms of aid, even up to the cost of attendance. Out of the three direct federal loans, PLUS loans have higher origination fees and interest rates. To qualify for a PLUS loan, the borrower must submit to a credit check and have a solid credit score. Borrowers with less-than-stellar credit history may be eligible with a co-signer.

Private Loans

Private loans are issued by banks and other financial institutions to pay for whatever costs of college the borrower cannot pay out-of-pocket. The borrower must submit proof, like a high credit score, that they will be able to repay the loan. If the student cannot qualify for the loan alone, they may become eligible with a co-signer.

To apply for a private loan, the borrower must go to their intended loaner’s website or institution. The borrower can apply for one private loan to cover costs for the entire school year.

Other Types of Payment

Grants & Scholarships
College grants and scholarships are considered “free money” that a student can use to help pay for their education. The student typically does not have to pay back a grant or scholarship, unless they withdraw from their program early or change their enrollment status.

While scholarships are usually an award for achieving a certain level of merit or ability, grants are primarily need-based or, sometimes, merit-based. To apply for a grant, a student must fill out the FAFSA. To apply for a scholarship, students often have to submit an essay or application to their school or various scholarship websites for consideration.

Work-study
Work-study is a federal program available for students with financial need. A qualifying student must fill out the FAFSA for consideration. If accepted, the student will then be able to work part-time on their campus and earn a minimum wage. The money they earn through work-study can be applied to cover day-to-day living, tuition, fees, or room and board.

Covering the cost of college can seem insurmountable. But with the right loans that best suit your needs, you’ll be headed towards your diploma in no time.

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