Federal and Private Student Loans
The process of applying for student loans is often both both stressful and confusing. We want to help, hopefully this page reviews all of the basic types of student loans and most importantly how you can qualify for them.
There are two fundamental lending programs for student loans, government or federal student loans and private (private banks) alternative student loans.
- Government and/ or Federal Student loans are loans issued by & guaranteed by the U. S. government. These loans are from both the U.S. Department of Education, as well as Department of Health and Human Services. In the past most major banks and credit unions would also offer federal student loans that were backed by the U.S. government. However recently Obama signed a law making all federal or government backed student loans to be provided directly by the government and no longer offered by the banks. These loans can also be consolidate with student loan consolidation services. These are generally called federal consolidation loans, the interest rates on these loans are set by Congress every year, and are traditionally fairly low compared to private loans.
- Alternative Student Loans or Private Loans are loans issued and guaranteed by non-federal organizations like banks and credit unions. These include loans from organizations such as TERI, state or local student loans, bank loans, and individual non-government agency loans (like the SallieMae or Nelnet loans). The interest reates on private loans are set by the issuing lender and thus can vary wildly.
Types of Stafford Loan Interest Rates:
There are two fundamental types of interest rates for Stafford student loans, subsidized and unsubsidized.
- Subsidized loans are loans that have some or all of the interest paid by someone besides the borrower while the borrower is in school. The most common examples of subsidized loans would include the subsidized Stafford Loans and Perkins Loans.
- Unsubsidized Loans have interest which accrues from day 1, immediately when the loan starts. You may not have to make payments on that interest while you are in school full time, but the interest clock is ticking and adding up. The most common examples of these loans include the unsubsidized Stafford Loan, Parent PLUS Loan, private alternative student loans, and student loan consolidation.
This is clearly a case of Buyer Beware! Most people do not know the difference between federal and private student loans, subsidized and unsubsidized, so make sure that when you apply for a loan you know what you are signing up for. A student loan is a promissory note which stays with you till it’s paid for so make sure you get the appropriate student loan type.