Student Loans 101: What Types Exist and What Do They Cover?

The Federal Student Loan Debt Relief Act (PL 113-47)

This act was signed into law on July 9th, 2009 and revised the Higher Education Act of 1965. This act provides loan forgiveness for eligible borrowers who meet certain requirements. If you have federal student loans, this is a great way to get out of debt and begin repaying your student loans. Students must have at least $50,000 in direct student loan debt to qualify for this program.

The Federal Perkins Loan Program

Perkins Loans were created in 1964 to assist students with student loans whose families could not afford their education costs. These funds are given to qualifying schools based on need. Eligibility criteria include having less than a half million dollars in family income and having no assets. Borrowers may earn up to 20% of their discretionary income from their job while in school. A borrower’s repayment starts after graduation.

Direct Subsidized Private Loans

A direct subsidy A private loan is a loan from both government and private institutions that is backed by the US government. These types of loans are subsidized by the government because the interest rates are lower than what the private lending industry would offer. However, these loans are only available to those who attend eligible colleges and universities.

Direct Unsubsidized Private Loans

Direct Unsubsidized Private Loans are loans originated by banks and financial companies. There are two different types, depending on whether a bank or other lender originates the loan. Banks will often originate a loan to someone who already has a good credit history and can prove their earnings as well as the amount borrowed. Other lenders might require additional documentation to show that the person is able to repay the loan.

PLUS Loans for Parents

Plus Loans are federally guaranteed loans offered directly by the Department of Education. Parents must borrow money to help pay for college for their children. Eligible parents can borrow up to the cost of attendance, minus any existing grants and scholarships the child is receiving. Both undergraduate and graduate students are eligible for this loan option.

Consolidation Loans

Loans can be consolidated into one monthly payment with a single principal and interest rate. If you have several loans with varying interest rates, you can consolidate them into one loan with a higher interest rate. You should consider consolidating all of your student loans if possible.

Refinancing Student Loans

Refinancing means taking out a new type of loan to pay off the old one. To refinance a private loan, you must have a minimum credit score of 620. Most refinancing options for federal student loans have higher minimums (800+). Refinancing a loan involves paying down the principal balance over time instead of making one large payment each month. Repayment begins immediately after the loan is fully paid off.

Student Loans 101: What Types Exist and What Do They Cover?

Federal Student Loans (FSL)

Federal student loans exist under the control of the US Department of Education and offer financial assistance to students who wish to pursue higher education. There are three types of federal loan programs: Direct Subsidized Loan Program, Direct Unsubsidized Loan Program, and the Graduate PLUS program.

Direct Subsidized Loan Program: The direct subsidized loan program offers money to students who attend eligible schools that participate in the IV federal education aid program. Eligible institutions must meet certain requirements to participate in the IV program, including participation in designated state and local educational agencies. Students enrolled at these institutions may receive direct subsidized loans and are responsible for repaying their loans while enrolled at least half-time. However, after attending school less than half-time, some borrowers have access to deferment options. Borrowers have six years from the date of enrollment to complete repayment. Borrowers generally have the option of paying interest only on their loans or making both principal and interest payments until the loan is repaid. If borrowers choose to pay off their loans early, they have the opportunity to make payments based on standard payment plans.

Direct Unsubsidized Loan Programs: The direct unsubsidized loan program provides funds directly to students who attend colleges and universities that choose not to participate in the VI federal education aid program. While direct unsubsidized loans have lower eligibility requirements than direct subsidized loans, most borrowers must repay any loans awarded to them. Deferments are available up to 120 days before graduation. Other repayment options include extended repayment programs that allow borrowers to extend their terms beyond the 12 years normally associated with subsidized loans. Payment plans are available for those who qualify.

Graduate Plus Loan Program: The graduate plus loan program provides additional funding to undergraduate and graduate students who enroll in eligible postsecondary programs. Students must have sufficient family income and assets to cover any unmet need for tuition, fees, room and board costs.

Student Loans 101: What Types Exist and What Do They Cover?

There are two types of student loans out there today: federal and private. Federal student loans are offered by the U.S. Department of Education and are generally guaranteed by the government. Private student loans are not backed by the federal government but are still regulated by the U.S. government.

Federal student loans are offered either directly or indirectly. Direct student loans go directly from the school loan program to the borrower. Indirect loans require the loan company to first take money from a bank and then make the loan to the student.

Private student loans are also divided into direct and indirect varieties. Direct private loans allow the student to borrow funds directly from the lender, while indirect loans work similarly to their federal counterparts. As long as both parties follow the rules laid down by the federal government, borrowers have no problem getting approved for private student loans.

While federal student loans tend to have lower interest rates than their private counterparts, they also have higher limits. While private student loans can have low starting limits but higher maximums, federal ones almost always start at $20k and max out at $35k. In addition, private loans only have one set repayment period (10 years), while federal ones offer three (five-year fixed, ten-year fixed, or six-month grace). However, private loans have slightly higher monthly payments and accrual fees.

Private loans give students more flexibility in terms of where they choose to study and how much they want to pay. Since these loans are not issued by the federal government, they are unregulated, meaning their interest rates can vary greatly depending on who issues them. Additionally, private lenders tend to have lower minimum credit scores than federal lenders (750 vs 700), making them easier to get.

The biggest downside to private student loans is that they are more expensive. Private lenders charge more for their services and thus will likely demand higher interest rates. These rates may seem appealing since they are lower than what federal loans offer, but keep in mind that once your payment reaches 40% of your discretionary income, you risk losing your eligibility for subsidies.

Student Loans 101: What Types Exist and What Do They Cover?

There are two types of student loans: Direct Subsidized Loans (DSL) and Direct Unsubsidized Loans (DUS). All students have access to both of these loan programs. However, only subsidized loans are regulated under federal law. There are four main types of subsidized loans: Federal Family Education Loan Program (FFELP), Federal Stafford Loan Program (FSLP), Federal Pell Grant Program (FPGP), and Federal Supplemental Educational Opportunity Grants (FSSOG).

Subsidized loans are federally regulated loans that are backed by the U.S. Department of Education. These loans are designed to make higher education affordable for eligible borrowers. In order to qualify for federal financial aid, you need to meet certain requirements, including having a high school diploma or GED certificate; not being enrolled in active military service; and demonstrating financial responsibility. Students who are accepted into the loan program will receive funds directly deposited to their bank account and may use them towards any type of university expense except tuition, room and board, mandatory fees, personal books, and supplies. Borrowers cannot incur interest while they are taking out the loan. However, if you default on the loan, you could be charged late payment penalties and possibly even have your federal loans turned over to a collection agency.

You will receive unsubsidized loans if you do not meet the eligibility requirements for the FFELP, FSLP, or FPGP. You must first fill out an application for the loan and meet several criteria before receiving approval. Once you are approved, you will receive the money directly deposited into your bank account and can use it towards any type of university expense except tuition, room, and board.

The amount of funding provided through the Pell Grant program varies depending on factors like whether you attend full-time or part-time; how many years you enroll at the institution; where you go to school; and what type of degree you pursue. Your award will depend on your academic record and class standing. If you want to borrow money for college, then you should apply for the Pell Grant program.

Student Loans 101: What Types Exist and What Do They Cover?

Federal Stafford loans

The federal student loan program was created in 1965 and is currently run by the U.S. Department of Education. There are two types of federal student loans—subsidized and unsubsidized. Subsidized loans require students to pay only interest while the government pays the rest (up to certain limits). Unsubsidized loans have no restrictions about how much the borrower owes, nor do the students need to make any payments. While these loans do not carry private lender’s insurance, they do have a fixed rate of interest. If you don’t make enough money to cover the minimum monthly payment after paying for college expenses, you could end up defaulting on the balance.

Private student loans

Private loans are just what their name suggests; they’re made privately between the student and the lender. You may not benefit from tax-free income if you borrow from a private lender. These loans tend to cost less than federal loans. However, you may need to start repaying your debt earlier depending on the terms of your loan.

PLUS Loans

If you take out a PLUS loan, you’ll be borrowing directly from the U.S. government rather than a private lender. Unlike subsidized and unsubsidized loans, PLUS loans cannot be discharged by filing for bankruptcy. Plus, loans can be expensive, especially if you plan to graduate school.

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