The Federal Student Loan Program was created to meet the financial aid needs of a variety of students. Therefore, not all student loan programs are created or distributed equally.
The two primary student loan categories are public or private. The difference being that the former is funded by government programs and the latter is offered through private lenders. Generally, a federal student loan will have much more favorable terms than a private student loan.
The Federal Stafford Loan is by far the most popular government-run student loan program, probably because borrowers are not subject to a credit check, and since they also offer financial aid that is both subsidized and unsubsidized. The benefit to this program is, as long as you apply before your school’s funds run out, you can use a Stafford Loan as a form of non-need based financial aid.
Students who utilize this form of financial aid are guaranteed one low interest rate over the life of their loan, and are allowed to defer student loan payments for six months following graduation or withdrawal, giving them time to find a job.
In addition, financial aid is available to students at both the undergraduate and graduate level.
The Federal Perkins Loan is designed to help students with an extraordinary need for financial aid and many applicants will not qualify for its extremely generous terms. Perkins Loans are subject to a lower annual and lifetime limit on borrowing, but are free from any origination fees. In addition, they offer a significantly lower interest rate which is paid by the government on the student’s behalf. Similar to the Stafford loan, it is a form of financial aid that is available at both the undergraduate and graduate level.
However, unlike some forms of need-based financial aid, it is a student loan must be repaid.
A Federal PLUS Loan allows students and parents to borrow enough money to fund whatever need is not met by other financial aid programs. It essentially allows you to completely pay for college with almost no money out of pocket. However, your first student loan payment may be due as early as 60 days from disbursement. In addition, the PLUS financial aid program is subject to noticeably higher interest rates and may be subject to origination fees of up to 4%.
Unlike the Stafford Loan, PLUS loans require good credit and are less flexible with their repayment options.
While a student loan is one of the most generous and easiest way to obtain financial aid, it also presents the risk and challenge of repayment once they begin.
Make sure you have fully explored available federal grants as they can cover a significant amount of the financial aid you may require, and more importantly they are essentially gifts that do not need to be repaid.