Student Loans

How do Student Loans work?
Student loans are loans offered to students to assist in the payment of the costs of higher education. These loans typically have lower interest rates than other loans and are usually issued by the government.  

Higher education loans differ from scholarships and grants in that they must be paid back. They come in several varieties in the United States:

• Federal Loan to Students: These loans do not require to be paid until after the student graduates from college. But the amounts granted for these loan amounts are quite limited. The loans are available to college and university students and are used to supplement personal and family resources, scholarships, grants and work-study. They may either be subsidized by the U.S. Government or unsubsidized depending on the student's financial need. Both the subsidized and unsubsidized loans offer a grace period of 6 months which means that no payments are due until 6 months after graduation, or 3 months after the borrower becomes a less-than-fulltime student without graduating. They have an annual limit regardless of the student's actual cost of education. Subsidized Federal student loans are offered to students with a demonstrated financial need like a low family income. For the subsidized loans, the federal government makes interest payments while the student is in college. Unsubsidized federal student loans are also guaranteed by the U.S. Government, but the government does not pay interest and the interest accrues during the college years. Students can choose to pay the interest while still in college. Federal student loans for students of medicine have higher limits.

• Federal Student Loans to Parents: These are known as PLUS loans (Parent Loans for Undergraduate Students). These have much higher limit but payments start immediately. Unlike loans made to students, parents are able to borrow much more. However, there is no grace period and payments start immediately. Only the parents are responsible for repayment on these loans, not the student. 

• Private student loans: These are loans made to students by private finance companies like banks or specialized education lenders. They generally offer higher loan limits and a grace period with no payments due until after graduation. This grace period can be as high as 12 months after graduation though most private lenders offer 6 months. Private student loan rates are lower than non-specialized private loans but slightly higher than government loan rates. Private loans often carry an origination fee. Origination fees are a one-time charge based on the amount of the loan. Private student loan programs generally issue loans based on the credit history of the applicant and any applicable co-signer/co-endorser in contrast to federal loan programs which deal primarily with need-based criteria.