COLLEGE STUDENT LOANS: DEFINITIONS AND DIFFERENCES

I always say, there’s a way to pay for education besides you. After graduating college, I had well over $20,000 in students loans that I owed. Now, that’s almost 5 years worth of college education and 2 different schools, so I paid for my mistakes here, but it happens to so many people. Ask anyone with a degree and chances are they took out some sort of loan to help pay for school.

But the question many ask is what types of loans are available for undergraduate or graduate college students. And the difference between them all. So I looked up the main loans provided through financial aid

Loans are inevitable sometimes for college

Most people believe that student loans should not be needed to pay for education, but to be honest with you, student loans are becoming more of a staple in assisting in one’s college costs.

Loans are easy to get, with some help

You should not go bankrupt for college. Figure out and be honest with what your financial contributions are going to be. Estimate what FAFSA (Free Application for Federal Student Aid) would provide you, and plan possibly borrow the remaining amount in loans. If you still think it is too much to take on financially, there are plenty of other options for you to consider in getting your degree.

Don’t forget scholarships! Those are always the easiest and cheapest to obtain.

Many of you may have questions regarding other details about student loans, and all the types involved. Well, I did some research through www.studentaid.ed.gov and found some great advice, tips and FAQs regarding loans. I made some changes and adjustments based on what I’ve heard from others and most recent data.

Please read through this to get your full understanding of student loans and the types that would suit you.

Before you begin…

You need to make sure you are eligible and have what you need in order to be eligible for student aid. Eligibility for most federal student aid is based on financial need and on several other factors. The most basic eligibility requirements to receive federal student aid are that you must:

    • be a U.S. citizen or an eligible noncitizens,
    • have a valid Social Security number,
    • register (if you haven’t already) with the Selective Service, if you’re a male between the ages of 18 and 25,
    • maintain satisfactory academic progress in college or career school, and
    • show you’re qualified to obtain a postsecondary education by
  • having a high school diploma or General Educational Development (GED) certificate;
  • passing an approved ability-to-benefit test (if you don’t have a diploma or GED certificate, a school can administer a test to determine whether you can benefit from the education offered at that school);
  • completing six credit hours or equivalent course work toward a degree or certificate;
  • meeting other federally approved standards your state establishes; or
  • completing a high school education in a home school setting approved under state law.

Student loans, unlike grants and work-study, are borrowed money that must be paid back, with interest, just like car loans and home mortgages. These are legal obligations, so before you take out a student loan, think about the amount you’ll have to repay over the years. Here is some great definitions and explanations of the various types of student loans you can receive.

Federal Perkins Loans are made through participating schools to undergraduate, graduate and professional degree students. These are offered to students who demonstrate financial need and have to be enrolled full-time or part-time. Perkins loans are repaid to your school. Federal Perkins Loan is a low-interest (5 percent) loan for both undergraduate and graduate students with exceptional financial need. Federal Perkins Loans are made through a school’s financial aid office. You can borrow up to $5,500 for each year of undergraduate study (the total you can borrow as an undergraduate is $27,500).

Stafford Loans are for undergraduate, graduate and professional degree students. You must be enrolled as at least a half time student to be eligible for a Stafford Loan.

There are two types of Stafford Loans: Subsidized and Unsubsidized. You must have financial need to receive a subsidized Stafford Loan. The U.S. Department of Education will pay (subsidize) the interest that accrues on subsidized Stafford Loans during certain periods. Financial need is not a requirement to obtain an unsubsidized Stafford Loan. You are responsible for paying the interest that accrues on unsubsidized Stafford Loans

Below is what I took directly from the website. It is exactly what I get asked all the time, and I am sure you are wondering the same thing, It should help you to understand the process a little more and where you can benefit from a loan for education:

Direct Stafford Loans include the following types of loans:

    • Direct Subsidized Loans—Direct Subsidized Loans are for students with financial need. Your school will review the results of your Free Application for Federal Student Aid (FAFSASM) and determine the amount you can borrow. You are not charged interest while you’re in school at least half-time and during grace periods and deferment periods.
  • Direct Unsubsidized Loans—You are not required to demonstrate financial need to receive a Direct Unsubsidized Loan. Like subsidized loans, your school will determine the amount you can borrow. Interest accrues (accumulates) on an unsubsidized loan from the time it’s first paid out. You can pay the interest while you are in school and during grace periods and deferment or forbearance periods, or you can allow it to accrue and be capitalized (that is, added to the principle amount of your loan). If you choose not to pay the interest as it accrues, this will increase the total amount you have to repay because you will be charged interest on a higher principle amount.

Direct PLUS Loans are loans parents can obtain to help pay the cost of education for their dependent undergraduate children. In addition, graduate and professional degree students may obtain PLUS Loans to help pay for their own education. They will look and make sure you do not have an adverse credit history; and its at a fixed interest rate of 7.9% for Direct PLUS Loans.

Direct Consolidation Loans allow student or parent borrowers to combine multiple federal education loans into one loan with one monthly payment.

A few more things…

  • These loans are made through one of two U.S. Department of Education programs: Loans made through this program are referred to as Direct Loans. Eligible students and parents borrow directly from the U.S. Department of Education at participating schools. Direct Loans include subsidized and unsubsidized Direct Stafford Loans (also known as Direct Subsidized Loans and Direct Unsubsidized Loans), Direct PLUS Loans, and Direct Consolidation Loans.
  • Whether you (or your parents) receive a Stafford or PLUS Loan depends on which program the school you attend participates in. Most schools participate in one or the other, although some schools participate in both.
  • Some schools use one loan program for Stafford Loans and another loan program for PLUS Loans. For example, a graduate or professional student could receive a Direct Stafford Loan and a FFEL PLUS Loan for the same period of enrollment at the same school.

I hope this helps in your research. Please let me know @ thehopechest@keithlipke.com if you have any other specific questions.

Your Success is My Success,

Keith Lipke

I’m a careers and college recruiter, coach, public speaker and leader at The Career Closet. His passion is to educate, inspire, and give hope to young people who need it upon their search for the right career and college

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