Student Loans 101
Education is vital in today’s competitive job market, and as such many people turn to student loans for help paying for their higher education. Student loans often carry lower interest rates than other types of loans and they are often backed by the government. Additionally, payment is usually deferred until the student graduates.
From Wikipedia’s section on student loans in the United States, there are basically three types of student loans available in the U.S.:
- Federal student loans made to students directly: No payments while enrolled in at least half time status. If a student drops below half time status, the account will go into its 6 month grace period. If the student re-enrolls in at least half time status, the loans will be deferred, but when they drop below half time again they will no longer have their grace period. Amounts are quite limited as well.
- Federal student loans made to parents: Much higher limit, but payments start immediately
- Private student loans made to students or parents: Higher limits and no payments until after graduation, although interest will start to accrue immediately. Private loans may be used for any education related expenses such as tuition, room and board, books, computers, and past due balances. Private loans can also be used to supplement federal student loans, when federal loans, grants and other forms of financial aid are not sufficient to cover the full cost of higher education.
Federal loans to students can either be subsidized or unsubsidized, which essentially boils down to how much a student can borrow and when interest begins to accrue on the loan. Student loans subsidized by the government have smaller loan limits per year for the student than unsubsidized loans, although interest does not begin to accrue on them until after the student graduates. Conversely, unsubsidized loans begin to accrue interest immediately and also can have higher loan limits.
The Federal Stafford Loan is by far the most popular student loan in the United States. To apply for a Stafford Loan, you must first submit a FAFSA (Free Application for Federal Student Aid), and your school must agree that you are in need of financial aid.
To qualify for a Federal Stafford Loan, you must be a U.S. citizen or permanent U.S. resident. You also must be accepted to an accredited school and be enrolled as either a full-time or half-time student, and you can’t be in default on any previous loans.
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