Making Sense of Federal, Private & Parent PLUS Student Loans
As you prepare for college, it’s important to understand the different types of student loans available to you. According to Forbes, student loan debt has now reached 1.56 trillion dollars and graduates from the class of 2018 have, on average, around $29,200 in student loan debt. So, understanding the loans you (or your child) may be taking on in order to pay for higher education—and knowing the pros and cons of each—is more crucial than ever.
Federal Student Loans
Federal student loans are offered through the U.S Department of Education. A student can qualify for federal options when they file the Free Application for Federal Student Aid (FAFSA).* They offer two main types of loans, subsidized and unsubsidized. Which one a student receives is based on their financial need. So what’s the difference?
Subsidized loans are student loans that will not accrue interest while the student attends school. That is, the U.S. Department of Education pays the interest until the student graduates, falls below half time, or stops attending school.
Unsubsidized student loans do accrue interest while the student is in school, and the student will be responsible for paying that interest.
*We can help you file the FAFSA! Click here to learn more.
Private Student Loans
Private student loans are offered through private institutions, such as banks, credit unions, and other third-party vendors. Each institution can set its own terms, conditions, and rates—which means they can all differ greatly. These loans are meant to fill the gap between the cost of tuition and what federal aid is meant to cover. A majority of the time, when students apply for a private student loan, they’ll most likely need a cosigner due to their lack of credit and job history, and limited income.
Pros + Cons of Each
TYPE OF LOAN | PROS | CONS |
Federal | -Easy to receive. Just file the FAFSA. -Interest rates are typically lower. | -Servicers may be inefficient, with long hold times and other issues. -Loans may not cover all costs. |
Private | -Work with a trusted, local institution. -Cover up to the total cost of attendance. | -More rigorous application process. -Typically require a co-signer. -Interest rate may be higher. |
Parent PLUS Loans
Parent PLUS loans, which are offered through the U.S. Department of Education, are geared toward a student’s parents and/or guardians. The student themselves will not be tied to this loan and the responsibility falls on the parent or guardian. Like federal student loans, the rate changes every year and is a fixed rate no matter where you fall on the credit score scale. To learn more about Parent PLUS loans, click here.
Questions?
We’re here to help! Please call 260.490.8328, ext. 8265 or email our Youth & College Advisors with any questions.