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Student Loans

Student Loans represent an additional source of funds to help you pay for college. While you should try to minimize your student debt burden, sometimes loans are a necessary option. To keep your debt as small as possible you must make wise decisiosn based on facts. This article provides facts about types of student loans and will help you make good decisions.

Based on the FAFSA you submit (you have filled out your FAFSA, right? If not, read our FAFSA article and get it done right away!), you will receive a package from your school’s financial aid office. It will include your financial aid award plus suggested loans if necessary to cover the remainder of your costs. Here is a summary of the types of loans you may see in your letter:

Loans For School

The first thing to understand about a student loan is that it is money that must be paid back -- with interest -- over a specified period of time. (If you are looking for money that you don't have to pay back, see Scholarship Search Tips). Some loans come from the government; other are offered by private banks and other companies. Here we focus on the types of loans that are provided by the government.

Direct Loan Program

Under the Direct Loan Program you are borrowing directly from the U.S. Department of Education. Depending on your financial need, you be offered the following loans:

Direct Subsidized Loans

Subsidized Loans are offered to undergraduates with greater financial need. They have a bit more attractive terms than unsubsidized loans have. Most importantly, the government pays the interest on the loan while you are in school They may also pay the interest for 6 months after you graduate as well as for any periods of deferment of your loan payments. You should always check with your school's financail aid officer to be sure you have a full understanding of your total commitment.

Direct Unsubsidized Loans

You can qualify for these loans even if you don't show financial need. They are available to graduate as well as undergraduate students. You do have to pay the interest the entire time you have the loan. If you don't pay the interest while you're in school, it will continue to add up and will be added to the size of your loan once you're out of school. (To avoid ending up with much more debt that you expect, you must keep an eye on the interest being added to your loan amount!)

Direct PLUS Loans

These are unsubsidized loans (meaning you are responsible for the interest on the loan at all times) that you can get if you are a graduate student or the parent(s) of a dependent student. PLUS loans typically have a lower interest rate than would otherwise be available.

Direct Consolidation Loans

These are offered by the government to allow you to put all your inidividual loans together in a single larger loan thus simplifying record keeping and repayment to one loan servicer. The loans mus all be qualifying federal government loans.

Federal Perkins Loans

If you have more significant financial need you may be offered a Perkins Loan. The funding for Perkins Loans comes from the government but is offered and administered by individual schools.

For a broader view of types of financial assistance available read our article on Financial Aid.