SUBSIDIZED, UNSUBSIDIZED, STAFFORD, PERKINS…WHAT’S THE DIFFERENCE?

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.

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 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 specifics surrounding 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.

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 ad have to be enrolled full-time or part-time. Perkins loans are repaid to your school.

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.

PLUS Loans (Direct or FFEL) 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.

 

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

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.

Loans made through this program are referred to as FFEL Loans. Private lenders provide funds that are guaranteed by the federal government. FFEL Loans include subsidized and unsubsidized FFEL Stafford Loans, FFEL PLUS Loans and FFEL Consolidation Loans. You repay these loans to the bank or private lender that made you the loan.

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.

It’s possible for you to receive both Direct and FFEL Loans but you can’t receive the same type of Direct or FFEL Loan for the same period of enrollment at the same school.

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.

Interest rate:

For loans first disbursed on or after July 1, 2008, the interest is 6.0 percent for subsidized* Stafford loans for undergraduate students and 6.8 percent for unsubsidized* Stafford loans for undergraduate and graduate students.

FFEL PLUS Loans first disbursed on or after July 1, 2006 have a fixed interest rate of 8.5 percent. Direct PLUS Loans first disbursed on or after July 1, 2006 have a fixed interest rate of 7.9 percent.

Click this link to get more details of this loan information, and charts on how interest rates are compared and calculated. http://studentaid.ed.gov/students/publications/student_guide/2009-2010/english/typesofFSA_loans.htm

I hope this adds to your research. Remember, the more you have, the better off you will be.

Don’t be scared or intimated by loans. Its okay. Everybody does it. follow my tweets! for more.

My success is your success,

Keith Lipke

 

Keith Lipke is a careers and college recruiter, coach, mentor and blogger at     The Hope Chest. 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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