With so many different types of loans for college out there, it can be difficult to pick the right one. When you factor in interest rates, subsidies, and payment plans, making the right choice here can potentially save you tens of thousands of dollars. It can be especially difficult when searching for loans online, where none of the sites explain things in plain English. We’ll break down the main types of college student loans and list the pros and cons of each.
Stafford Loans are the most popular type of loan for college students, coming directly from the Federal Government. They’ve replaced the popular Perkins Loans, which stopped being offered to new students in 2017.
Stafford Loans can be either subsidized or unsubsidized; however, subsidized loans are reserved almost exclusively for students who suffer from financial hardship. If you qualify for a Stafford Loan, the government will foot all interest payments for you, which currently sit at 5.045% for undergraduate students.
With unsubsidized Stafford Loans, you are fully responsible for all of the interest payments. Your annual limit will generally be between $5,500 to $12,500, depending on your school year and whether you’re claimed as a dependent on someone’s tax form. This could be a great option for graduate and medical students, both of whom have access to much higher limits.
Most college students are receiving a loan from a different borrower either every year or every semester. This can add up to eight to ten monthly loan repayments, which this type of student loan helps to consolidate.
A direct consolidation loan is a fixed interest loan that you’ll pay to one service provider once a month. It takes a lot of the guesswork out of your repayments and should eliminate the chance of any late fees. On the downside, these can potentially stretch your payment over longer periods and reduce your eligibility for loan forgiveness programs.
This is becoming an increasingly popular choice out of the different types of loans for college students. Direct Plus Loans are available to both parents and graduate students after they’ve undergone a credit check.
These are funded by the Federal Government and don’t have any maximum amounts, meaning they can cover any education cost. A downside of this loan is the relatively high interest rates, currently at 7.6% p.a.
This is quite similar to the Plus Loans mentioned above, however, there are a few differences. Parent Plus Loans are available to parents of dependent undergraduates who are expected to make payments while their dependents are in school. They can request to defer these payments in the application process, which usually results in a higher interest rate.
This type of college student loan caters to both students and parents who are struggling to meet their financial obligations, even with the money provided in federal loans. Your eligibility and interest rate for this type of loan depends largely on your credit history. The main downsides are that many of these loans require payments while you’re still in school and the deferment options are rather limited.
Choosing what loan is right for you and your education can be a tricky decision to make. We hope our information clarifies which loan is best suited for your specific needs.