Understanding the types of loans offered to you in your financial aid package is key to managing your budget effectively. As you review loan types, it is helpful to ask yourself the following questions: "Who takes out the loan" and "Who pays the interest while I'm in school?"
There are three major types of student loans:
- Perkins Loans
- Stafford Loans
- PLUS Loans – Loan for Parents
The primary difference is that students take out Perkins and Stafford loans themselves, while PLUS loans can only be taken out by parents.
The loans that you borrow yourself are often a better deal because PLUS loans require your parents to begin repayment within sixty days of the final disbursement. With the Perkins and Stafford loans, you don't have to start paying them off until six or nine months after you graduate from school, withdraw, or fall below half-time enrollment status.
The question of whether a loan is subsidized or unsubsidized comes down to who pays the interest while you are in school.
Subsidized Stafford loans are need-based and are the BEST OPTION. The government pays the interest on these loans while you are in school and during the first 6 months after you graduate, withdrawal or fall below part-time. The government also pays the interest during any authorized deferment (i.e. if you apply to have loans deferred due to financial hardship).
Unsubsidized Stafford loans are not need-based, and you are responsible for all of the interest that accrues on the loan, including while you are in school. You may however, choose to pay the interest while you are in school.
While subsidized loans are the preferred choice, you are limited to specific amounts each year.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give.
~William A. Ward
~William A. Ward