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 $5,500 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; 3.4% for subsidized Stafford loans for undergraduate students only; 6.8% for both subsidized and unsubsidized Stafford loans for graduate students for the 2011-12 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 the student must demonstrate financial need and the interest is paid by the federal government while the student is in school) and unsubsidized (which is not based on need, but the student is responsible for all the interest that accrues).
Federal PLUS Loans (Parent Loans for Undergraduate Students):
- The student must be a dependent, undergraduate.
- A simple credit check is required, but only for adverse credit history (bankruptcy, default on a previous federal student loan, etc.) - not for a particular credit score.
- 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, borrowers may be able 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 score. 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.
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