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Types of student loans

Thursday, March 29, 2012
While the cost of earning an associate’s or bachelor’s degree seems to increase every year, there are many programs to help you afford a college education. One of the most common solutions to covering college tuition is to take out a loan.

Before you pursue this option, you should know that unlike scholarships and grants, loans must be repaid with interest. If you and your family accept that responsibility, there are several loan options to help you pay for college.

The United States Department of Education (DOE) is the largest provider of student loans. Federal student loans typically have low interest rates and extended repayment terms.

The most widely-used federal student loan is the Stafford Loan. Depending on the information you provide on the FAFSA (Free Application for Federal Student Aid) you may be eligible to receive either a subsidized or unsubsidized Stafford Loan. In a subsidized loan the government pays the loan interest while you are in college; however, the interest accrues on an unsubsidized loan. With either option you will not be required to make any payments while you are in college. In addition, you may be able to take advantage of a fixed interest rate as low as 3.4 percent, according to the Federal Student Aid Web site.

The Perkins Loan is another federal program but this one is administered directly by the colleges. According to the DOE, approximately 1,700 colleges and universities currently participate in this program. If you attend a participating college you are advised to apply as soon as possible for financial aid as the funds are limited. As an undergraduate, you can receive a maximum of $5,500 per year in Perkins Loans.

Your parents may apply for the federal government’s Direct PLUS Loan. Parents must have a good credit history in order to be eligible, states the Federal Student Aid Web site. Parents will pay a fixed interest rate of 7.9 percent in addition to a 4 percent origination fee.

If these programs do not meet all your financial needs, you may want to look into private education loans. This money often comes from banks, although there are also credit unions that are set up to make education loans. According to, a financial aid resource Web site, eligibility for private loans is often based on the borrower’s credit score.

You can find more information on all of the loan programs described above by visiting or by calling the Federal Student Aid information center at 1-800-4-FED-AID (1-800-433-3243).ADNFCR-16000756-ID-800741614-ADNFCR - helping you find colleges and universities that offer the accredited programs that most interest you.

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