Broadly speaking there are three types of education loans available for students in the US. These student loan options are federal, private and refinance loans.
Federal loans are provided and backed by the government, while individuals, banks, credit unions and states offer private loans and refinance loans. Federal loans are more flexible overall and have countless advantages.
Private student loans are available, but every expert recommends students exhaust all avenues for federal aid first. Certain terms and conditions of private student loans – very good credit or a cosigner needed – make it very difficult for most students to secure one. Also, the interest rates usually are higher than those on federal loans.
The particular loan that’s best for you depends on various factors like your financial need, year in school and whether you have a credit history. (Derogatory marks on credits are a big red flag)
To get federal loans, fill out the Free Application for Federal Student Aid (FAFSA). You can apply for private or refinance loans directly with the bank or financial institution you want to borrow from.
Types of Education Loan: Federal Student Loans
The five types of federal student loans are:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Parent PLUS Loans
- Graduate PLUS Loans
- Direct Consolidation Loans
Each of the loans is explained in detail below.
Direct Subsidized And Unsubsidized Loans
These two loans are the types of Federal Direct Loans, also known as Stafford Loans. Undergraduates with financial needs can get a subsidized loan. The government pays the interest on these loans while you’re in school, in your grace period or pausing payments through deferment. This option is one of the best student loans for college.
In the unsubsidized loan option, you are not required to show any financial need. These loans are an option for both undergraduate and graduate students. You will be responsible for paying interest at all times.
In order to know more, do read: Subsidized Loan Vs An Unsubsidized Loan: Which Is Better And Why?
PLUS Loans | Types of Education Loan
Another great option in this list of types of student loans is the PLUS loan. PLUS loans are available for graduate students as well as parents. Parent PLUS loans are for parents of dependent undergraduate students, and Grad PLUS loans are for graduate students themselves. It is important to note that they have higher interest rates and origination fees than other federal loans, and they require a credit check.
As with all other education loans, PLUS loans are funded directly by the federal government. Unlike traditional student loans, they do not have any maximum amount limit and can be used to cover education costs not covered by other financial aid.
Before they were suspended by the CARES Act, Direct PLUS Loans for parents and graduates carried a 5.3% interest rate, fixed for the life of the loan.
Direct Consolidation Loans | Types of Education Loan
Most students have 6-8 student loan payments due every month when they finally graduate because in the past every year (or even every semester) they borrowed from a new lender. You can simplify the repayment process by applying for a Direct Consolidation Loan, which unites all your loans into one single loan. Thus helping you reduce, or even eliminate, late fees when you miss a payment.
The Direct Consolidation Loan is a fixed-interest loan with flexible options, based on your ability to repay. There is no fee to consolidate student loans, though you can do it only once.
The downside is that you could end up stretching payments over a longer period and paying more in interest on the debt.
Unfortunately, there was one more popular loan option – Perkins Loans, that ceased to exist.
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Types of Education Loan: Private Loans
Private education loans, also called alternative education loans, are an option for students and parents who still can’t meet financial needs for attending college, even with money available through federal loans.
When you apply for private loans, the lender will require proof demonstrating your ability to repay it, usually in the form of a good credit score. If you do not have the required credit score then a co-signer can help you qualify; this person will be responsible for the loan if you can’t pay it back.
The various types of private loans are:
- Bar Exam Loans
- Bootcamp Loans
- Credit Union Loans
- International Student Loans
- Income Share Agreements
- Medical School Loans
- State Loans
- Student Loans For Bad Credit
Suggested Read: How To Remove Derogatory Items From Your Credit Report
Types of Education Loan: Student Loan Refinancing
You may be able to refinance student loans after you graduate and have shown responsible payment history. This involves a private lender that pays off your loans and gives you a new repayment schedule and a lower interest rate. You’ll lose federal loan protections if you include federal loans in the package.
Read More: How To Refinance Federal Student Loans
This student loan option includes:
- Parent PLUS refinance loans
- Medical school refinance loans: During residency
- Medical school refinance loans: After residency
Thank you for reading this blog ‘Types of Education Loan In The US – Which Is Best-Suited For You?’. If you enjoyed reading this blog and would like to continue reading more about student loans then do check out our following blogs.
- The Exhaustive 55 No-Loan Colleges List
- Signature Student Loan – The Most Popular Type of Unsecured Loan
- How Student Loan Repayment Works
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