Selecting the most appropriate college loan(s) will help students for their education and avoid an unpleasant experience when repayment becomes due. Failure to comprehend the options, conversely, may well lead to unpleasant surprises and serious financial difficulties.
Two kinds of loans are available to studentssubsidized and unsubsidized.
Subsidized loans are available to students who demonstrate, via the information they provide on the Free Financial Aid Form (FAFSA), substantial financial need. There is a finite limit on the amount of subsidized loan money students can borrow. However, the government pays the interest on such loans while students are enrolled in college, thus the term “subsidized”.
Unsubsidized loans require no financial need; everyone is eligible to apply for them, and they are available in larger amounts than are subsidized loans. However, students are responsible for the interest payments, thus the term “unsubsidized”..
Almost always, college students who are eligible to receive unsubsidized loans need the full amount they are allowed to borrow. If they need more than that limit, they can take out unsubsidized loans as well.
Students can apply for the Perkins Loan or the Stafford Loan. Repayment of both begins six months after a student has graduated, stopped out, or dropped out. When there is good reason, lenders will frequently extend this six month grace period, although they are not obligated to do.
Parents may also take out PLUS loans for their sons or daughter. PLUS loans offer fairly low interest rates, but require repayment to begin within 30 days.
Please be aware that student loans must be repaid, without exception. Even bankruptcy does not free borrowers of the obligation of full repayment. Generally, lenders will work with anyone making a good faith effort to repay their loans, but those who avoid contact with lenders or simply refuse to make payment may be subject to harsh penalties which including wage garnishment and the withholding of income tax refunds.
Loans are a great way for students to help finance their educational costs. In fact, for most people, they are the best investment they will ever make. But it is important to borrow no more than needed and to repay your loans on a timely basis.