If you are thinking about applying for a new school loan or consolidating your current school loans now that you have graduated, the information provided in this article should help you determine which loan you will need and the terms and conditions of the various loans.
Generally, student loans are categorized into either need base loans or non-need based loans, and there are federal and private loans available which fit into both of those categories.
Features of Need Based Loans:
1. Lower Interest Rates: The federal government is the main provider of need loans. The Stafford loan is the most popular need based loan which is a fixed interest rate loan of 6.8 percent. The Perkins loan has a rate of 5 percent.
2. Delayed Repayment: Need based federal loans do not require you to repay the principal loan until after you graduate or leave school. This is a deferred payment loan.
3. Interest Subsidization: As interest accrues on the loan, the government will pay this interest while you are in school and for up to 6 months after graduation.
Features of Non-Need Based Loans: Non-Need based loans are for students and their families who cannot afford to pay 100 percent of the college tuition and costs, but do not qualify for need based loans due to their income level. Non-need based loans typically have a higher interest rate, have no in-school interest subsidy and may require immediate repayment of principal.
There are four main types of School Loans that you need to know about;
Perkins Loans are need-based loans and are awarded by the financial aid office to students with the highest need. The interest rate is very low-5 percent-and you don't make any loan payments while in school.
Subsidized Stafford Loans are need-based loans with a fixed interest rate of 6.8 percent. With subsidized loans the federal government pays the yearly interest while you're in school.
Unsubsidized Stafford Loans aren't based on financial need and can be used to help pay the family share of costs. You're responsible for paying interest on the loan while in school. You may choose to capitalize the interest. The advantage of doing this is that no interest payments are required. The disadvantage is that the interest is added to the loan, meaning that you will repay more money to the lender.
Grad PLUS loans are student loans for graduate students sponsored by the federal government that are unrelated to need. Generally, students can borrow up to the total cost of education, minus any aid received. The advantage of this loan is that it allows for greater borrowing capacity. However, students should consider lower-interest loans, such as the Subsidized Stafford or Unsubsidized loans prior to taking out a Grad PLUS loan.
You can read more about federal and private loans that are incorporated into the need and non-need categories at our website listed below.