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8 Different Types of Student Loans

Holy Cow, I had no idea there were so many different types of student loans available to the high school graduate.

This guide will reveal the 8 different types of student loans you can chose from, as well as the positives/negatives of each and the little secrets we found out that will help you decide which types of student loans are right for your situation.

 

The 8 Types of Student Loans:

  • Federal Stafford Loan (2 types: subsidized-unsubsidized)
  • Federal PLUS Loan (Parent Loan for Undergraduate Students)
  • Federal Perkins Loans
  • Bank Loans
  • State Loans
  • Additional Unsubsidized Stafford Loan
  • Other types of loans
  • College Board Extra Credit Loan

Before you run out and start looking for different types of student loans understand that you are not eligible for any student loans until you have first completed and submitted your application to FAFSA.  Once they send you your Student Aid Report (SAR) then you can start looking for the best student loans available for you and your child.  Let's dig into the different types of student loans.

1.  Federal Stafford Loan - Subsidized:  the most popular and cost effective student loans available.  These are government guaranteed loans for both undergraduate and  graduate students.  It's really hard to beat these interest rates.

***Student Loans Secrets***

The College Cost Reduction and Access Act of 2007 determined the following fixed interest rates on Stafford loans.  These rates are for subsidized loans to undergraduate students.

  • 6.0% for the 2008-09 school year
  • 5.6% for the 2009-10 school year
  • 4.5% for the 2010-11 school year
  • 3.4% for the 2011-12 school year
  • returns back to 6.8% for the 2012-13 school year.

My wife was eligible for this loan, however it was not enough to cover all her expenses so she had to pursue additional sources.  My son was not eligible for a subsidized loan, therefore he had to get an unsubsidized loan.  

Remember, you will need to re-apply each year with FAFSA.  Make sure and be one of the first people in January to submit your applications, so you can get your answers quickly. This will help you plan out your next school year.

2. Federal Stafford Loan - Unsubsidized: this can be a long term, low interest rate loan. Right now the rate is 6.8%.  Those students who don't qualify for the subsidized loan almost always can get this loan.  In some cases you can postpone interest payments, but usually the interest on the loan is the borrower's responsibility.  We have chosen to make the payments monthly ($7.92) to keep the overall cost of the loan at a minimum.

***Student Loans Secrets***

Talk to your lending institution and ask for a monthly withdrawal on these interest payments.  We set this up with our son's account and we are paying his interest payments only and he is responsible for the principal. Our monthly interest payments of $10 a month not only covers the interest but the remainder is applied towards the principal.  As you will find out, if your loan is for $1000 by the end of college that loan is probably in the neighborhood of $1300 or more.  Add these loans add up over several years and it becomes a large chunk of money to have to pay back. Making these payments helps reduce his cost and it doesn't take much from our disposable income.

3.  Federal PLUS Loan - for parents of undergraduates

Basically the parent may take out a loan for their students college expenses.  You can borrow the total cost of their education, get low interest rates and a decent tax break.  Unique with this loan is the ability to overcome poor credit history.  This type of student loan has no ceiling on income levels or how many assets you have.  

***Student Loans Secrets***

You can negotiate the repayment schedule by either starting your payments after the 60-90 days you received the money or after your child graduates.

4.  Federal Perkins Loans -  normally these loans are awarded to students who have financial difficulties.  The funds available are limited but they are low interest loans. Interest does not start to accrue until 9 months after you graduate or you drop below half time status.  It is best to seek advice of your college financial aid adviser who can direct you in the right direction.

***Student Loans Secrets***

Federal Perkins Loans are reported to your credit bureau, which means it could damage your credit rating if you are late on payments or default on your loan.  Know what you are getting into and if you are a student, start thinking about the future and don't live in the present.  This is serious stuff.  Do it right and you have an instant EXCELLENT credit rating.

5.  Bank Loans - the only reason you would pursue this route is if you are turned down by the federal government.  These loans are usually a little higher in interest rates and each bank has different criteria you must fit meet.  It's best to shop around your local area to see what is available before you hit the internet. Some banks do offer Stafford Loans, but they are more strict on their policies.

***Student Loans Secrets***

They might limit their loans to full time students, repayment options are probably gonna be more limited, and they might offer some incentives on repayments. The most common is an interest rate reduction if you use automatic withdrawal.  Here is what we learned from one institutional Bank:

U.S. Bank supplemental loans... their student loans are credit based and they just want to make sure your loan is not covered by another type of financial aid.  The power of your cosigner and your credit history will help you qualify more easily for a loan and reduced interest rates.  They offer deferment which means you don't have to make payments on the loan or interest rates.  There are no application fees and you can easily learn within 15 minutes or so after submitting your online application if you qualify or not.

6.  State Student Loans - most states offer a guaranteed student loan.  These funds are administered by a bank which means you will need to apply for the loans through a bank.

***Student Loans Secrets***

These loans are usually more expensive to borrow from than your federal student loans.

7.  Additional Unsubsidized Stafford Loan - These types of student loans are determined by the federal guidelines and are reserved for borrowers who fall into the "independent category.

8.  Other types of loans - as a dependent you may qualify for student loans if your parents work place offers them.  The military is another good source for student loans, especially if they are currently serving. However, it is not limited to currently serving, if your parent ever served in the armed forces you should explore these opportunities.  Other places to explore are colleges and larger corporations or businesses.  Talk to your financial aid rep's at college, they have a lot of underground tactics they don't normally share with the public but will share with you.

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* College Board Extra Credit Loan - AMS or Academic Management Services is affiliated with around 2000 various universities.  They will pay your tuition fees but the catch is you have to repay those fees within a year or less.  These can be expensive and it is usually explored in dire emergencies.

You just read the top 8 types of student loans. Each has it's benefits and each has some drawbacks.  The last Student Loan Secret we will leave you with has not really been discussed above and it might be the best thing you'll need to remember.

Start shopping for interest rates, loan fees and repayment schedules.  Interest rate shopping is useless, if you are after a government loan, because they are fixed rates as you learned above. However private lenders are the ones to be very careful of before you sign on the dotted line. Keep in mind private lenders do have discounts so make sure and ask them point blank what they are.

Right now focus on which types of student loans best fits you and your family.  Best of luck and if you have found this webpage helpful, please let me know and if you think I need to add something, do the same.  These webpages are dedicated to all parents across the world who find themselves in a position of wanting to help their children but need assistance to help them fullfill their dreams.  Now, let's move on and.....

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