How Student Loans Work: Explained
How do student loans work, and how you can make them work better for you?
The FAFSA is a form that college students and their parents must fill out to determine if they are eligible for student financial aid from the U.S. government. For people that have completed the FAFSA and are determined to be eligible for student financial aid, the government will offer assistance in the forms of student loans, grants, work-study programs, and more.
Go to FAFSA's government website and fill the necessary forms there.
You must understand that most financial aid, although determined by different factors, is given out on a first-come, first-served basis. So, the earlier you start your application process, the better your chance of getting the maximum amount of aid available to you. And this is not a onetime thing, either. Even when you are in school, you must keep filling it out every year. This is because, you know, your circumstances might change.
Types of Loans
When filling the FAFSA forms, you will be faced with a few different loan options. These include:
1: Stafford Loans
Stafford loans are offered by the US Department of Education directly to you, the student. The loan can be used to pay for both college and university’s education. There are two types of Stafford loans; subsidized or unsubsidized; you apply for the one that meets your financial need. Subsidized loans mean you don't have to pay the loan’s interest while you are still an undergraduate. If your loan is unsubsidized, you begin accruing interest on the first day you receive your funding.
2. PLUS Loans
Parent Loans for Undergraduate Students (PLUS loans) are offered by the US Department of Education to the parents of students to help them fund their children’s education. PLUS, Loans are available to pay for tuition, room and board, books, and any other eligible school expense. The student needs to be attending school at least part-time. If the student is receiving additional financial aid, that extra amount may be deducted from potential PLUS Loan proceeds. Simply check with your student financial aid advisor for further details.
3. Perkins Loans
Perkins loans are available for graduate and undergraduate students. The Perkins loans are financed by schools but are guaranteed by the federal government. These loans are determined by your financial need and have caps of $27,500 for undergrads and $60,000 for graduate students.
When considering your financial options, PLEASE be sure to look at your interest rate; search for the best student loan rates. Every little financial detail can add up to huge amounts over the years during which you will be paying the loans back. So, ensure you understand the terms before you sign.
Also, depending on your situation, there may be a need for you to apply for private loans. They charge more interest and a higher fee. But federal student loans may not always cover all your tuition fees and expenses. That is why so many parents and students turn to private student loans to fill in the gap.
