School Loans and You: A Beginner’s Guide to Deciphering Student Loans

As you plan for college, the realization of looming costs can be overwhelming. Whether you attend a local college, or go away to school, you may be concerned with how to afford it, and college loans will probably be considered.

Many types of loans are available, through two main sources: the federal government, and private companies, are avenues for financing college. In each case, there are different packages and plans, with different requirements in obtaining funding, and in repayment. One common factor to recognize is that student loans must be repaid; they cannot be forgiven.

Federal Loans
Students applying for federal aid fill out the FAFSA (Free Application for Federal Student Aid), obtained from your college, or completed online at www.fasfa.ed.gov. Applications can be filled out from January 1, and deadlines vary based on state.

Direct Stafford Loans are available as either subsidized, or unsubsidized variations. A Stafford Loan is awarded in amounts up to $5,500 for the first year, with greater amounts available in subsequent years of study. A subsidized Stafford Loan will not accrue interest during the time the student is enrolled at least half-time in a program of study, and is awarded based on student need. An unsubsidized Stafford Loan is not based on a student's financial need, and accrues interest from the time it is dispersed. In both cases, the institution of higher learning will determine the amount of the award.

The Federal Perkins Loan is available to students who demonstrate an extreme financial need, and includes a low interest rate of 5%. The loan is available in amounts up to $5,500 per year, depending on the determination of the learning institutions, and availability of funds.

The Direct PLUS Loan is available to parents of students, and to graduate students, to cover the shortfall between a student's financial aid package, and need. A fixed rate loan, PLUS accrues interest at dispersal. Payments begin immediately, while other federal options don't require repayment until after the student graduates, or falls below half-time enrollment.

Repayment plans are flexible on Stafford and Perkins loans, and can be consolidated in the future. These are viable sources of funding for a college education, not based on student credit history. Direct PLUS is dependent on parent credit checks.

Private Student Loans

Private student loans may be available through servicing companies and banks. These are also non-dischargeable, and additionally, cannot be consolidated. A co-signer is needed in most cases for a student to obtain funding. Interest rates may vary, and terms may not be as flexible after graduation. However, for a determined student who needs financing in order to attain his career goals, this is an avenue to explore.

Rachel is a blogger and a contributing writer for the financial site paydayloans.org.uk, a UK site that helps customers with money when they need it.