Selecting the most appropriate college loan(s) will help students for their education and avoid an unpleasant experience when repayment becomes due. Failure to comprehend the options, conversely, may well lead to unpleasant surprises and serious financial difficulties.
There are two main types of student loans; subsidized and unsubsidized. The important difference between the two is who pays the interest while a student is enrolled in college.
Subsidized loans are available to students who demonstrate, via the information they provide on the Free Financial Aid Form (FAFSA), substantial financial need. There is a finite limit on the amount of subsidized loan money students can borrow. However, the government pays the interest on such loans while students are enrolled in college, thus the term “subsidized”.
Unsubsidized loans are available to all students, regardless of financial need, and are available in larger amounts. However, students are responsible for the interest payments.
Almost always, college students who are eligible to receive unsubsidized loans need the full amount they are allowed to borrow. If they need more than that limit, they can take out unsubsidized loans as well.
Students can apply for the Perkins Loan or the Stafford Loan. Payment on each begins after a student has graduated or has been away from college for six months. This six month “grace period” may be extended at the discretion of the individual lenders.
There is also the PLUS loan, which can be taken out by parents. The PLUS loan offers a relatively low interest rate, but requires repayment to begin sixty days after the loan is awarded.
Even bankruptcy does not free students of the obligation to repay student loans. Lenders will virtually always work with people making a sincere effort to repay their loans, but those who attempt to evade their responsibilities and obligations are subject to wage garnishment and other serious penalties.
Because a college degree will increase your lifetime income by an average of nearly $1 million, it’s a great investment. But, you certainly want to shop for the best terms you can get and avoid the temptation to borrow more than is necessary.
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