Credit Loan > Student Loans > Student Loans: To Borrow or Not to Borrow

Types of Student Loans

Going to college is a daunting experience whether one is a teenager leaving home for the first time, or a “grown-up” who has decided this is something vital to the continuing course of their life. It can be especially daunting if, like the vast majority of people, the would-be student is insufficiently rich, gifted or lucky, and needs a student loan to pay for at least some portion of their education, if not all of it.

The first step in applying for a student loan, after determining what school or schools one is interested in attending, is going on-line and filling out the FAFSA (Free Application for Federal Student Aid.) This will determine the level of need a student is determined to have, and what type of funding she qualifies for.

Even if the applicant knows she does not qualify for a grant, this form still must be filled out, as it provides vital information to both the school and the government as to what type of loan and other aid (such as work-study) the student might qualify for. The information on the FAFSA will automatically be sent to any school listed on the form, and arrangements can be made to have it forwarded to any other.

The two types of government loans available for students are subsidized and unsubsidized. Subsidized loans are loans where the government pays the interest while the student is attending school. With an unsubsidized loan, the student pays the interest. Government student loans are the best types for students to try to get while attending school. The reason for this is that even when the student is paying the interest, because these loans are extended through federal programs, they will have the lowest possible interest rate and there is no requirement to repay the principle until a period of time (usually 3-6 months) after the student leaves school.

While private loans can be obtained for attending school if, for some reason, the potential student does not qualify for federal aid, this should be the road of last resort. The interest rate may be higher, and a private loan is more likely to be in a format like a standard loan, where repayment begins almost the instant the loan is issued, an added burden no student needs.

Some schools will automatically apply for a loan for a student as part of their financial aid package. The student is free to take that, or to search around for another loan with terms more amenable to their situation. Even with lenders who work through federal programs, there may be differences in terms and repayment requirements, and finding the best possible loan is always advisable.