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College student loans come in many different shapes and sizes. There's need-based loans, non-need-based, subsidized, unsubsidized, private student loans, college-sponsored loans, and even loans that parents can obtain.

With so many different options available, it's easy to get confused. This article is intended to give you a better understanding about your various options so you can make better choices.

Here are some general facts about college student loans:

54% of financial aid comes in the form of loans, with the majority being loaned or underwritten by the federal government.

Some college student loans are "need-based", which means a family demonstrates "Financial Need" at a specific college. (If you don't understand the term Financial Need, please review the article "How Financial Aid is Awarded".)

Some loans are "non-need-based", which means a family does not demonstrate Financial Need at a specific college.

TIP: "Need-based loans" tend to have better and more lenient terms, so if you qualify for them, they should always be your first option.

The federal government makes available 3 main types of college student loans. Here's an overview of each type:



These are need-based loans with the same interest rates, loan maximums, and terms. A Stafford Loan may be borrowed from a commercial lender such as a bank or credit union. A Direct Loan is borrowed directly from the U.S. Department of Education. That's the only difference between the two loans.

They're called "subsidized" loans because the federal government pays the interest while you're in school.

Loan limits are as follows:

Freshmen = $2,625
Sophomore = $3,500
Juniors = $5,500
Seniors = $5,500

These are some of the best types of college student loans you can obtain. The origination fee is only 3% (which is deducted from your loan proceeds), interest rates are currently a low 3-4%, and repayment doesn't begin until 6 months after you graduate, leave school, or drop to below half-time status.


These are non-need-based loans offered at the same low rates and terms as the subsidized Stafford and Direct Loans. The only difference is that the federal government does not pay the interest while you're still in school, so repayment begins almost immediately.

With these loans, you have the option of not making payments while you're in school, but the drawback is that the interest payments get added on to your loan balance.


Perkins Loans are need-based loans and are awarded by the financial aid office to students with the highest need. The federal government pays the interest while you're in school, and repayment doesn't begin until 9 months after you graduate, leave school, or drop to below half-time status. Students can borrow a maximum of $4,000 per year for up to 5 years of undergraduate study.

Those are your loan options available from the federal government. Here are a couple of other options for obtaining college student loans

College-Sponsored Loans

Inquire with each college you're considering, as some colleges have their own loan funds. In some instances, interest rates may be lower than federal student loans.

Private College Student Loans

Many commercial lenders and financial institutions offer private education loans to students. These loans aren't subsidized and usually carry higher interest rates and higher fees than the federal "need-based" loans.

Here are the various types of loans that PARENTS can obtain for funding their child's education:

PLUS Loans

This is a non-need-based federal government loan, and is the largest source of parent loans. In fiscal 2001-02, approximately 612,000 loans were issued, totaling $4.6 billion. PLUS loans have no yearly limit (you can borrow up to a school's full Cost of Attendance, less any other financial aid received), the interest rate is variable and cannot exceed 9%, origination fees range from 3-4%, and repayment begins within 60 days.

College-Sponsored Parent Loans

You should definitely check with a college's financial aid office to see if they offer their own "in-house" loans, as a small number of colleges do offer their own parent loans, oftentimes at a better rate than PLUS loans.

Private Parent Loans

A number of lenders and other financial institutions offer private education loans for parents. You should most likely consider PLUS or college-sponsored loans first, as these private loans usually have higher interest rates and higher fees.

That's a brief overview about college student loans. If you'd like even more detailed information, a helpful resource about federal government loan programs can be found at www.studentaid.ed.gov. Also, a Google or Yahoo search under "college student loans" will return a whole slew of helpful resource sites.

Best of luck on your college journey! :)




Important Note

College student loans are called Self-Help Aid since it's money that has to be repaid. Gift aid (grants, scholarships, tuition discounts, fee waivers, etc.) on the other hand is money you don't have to pay back, and therefore, is the most favorable type of aid to obtain.

To learn the most effective methods for minimizing loans, and maximizing gift-aid, a highly recommended resource is "The No B.S. Guide To Getting Maximum College Financial Aid"

Details can be found at: www.college-financial-aid-secrets.com


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