Student Loans: Government & Private Student Loans

Postsecondary education comes with a price tag--one that many students and parents cannot afford. Costs of tuition, room and board, supplies, food, and transportation, among other things, add up quickly. That's where student loans come in. Student loans are lifesavers. Many students, who would not be otherwise able to pay for college and university education, take advantage of the different types of student loans. There are two main types of student loans: federal student loans and private loans. Private loans are also known as alternative loans; their funds are provided by private lenders. These types of student loans are credit-based loans, and not need-based loans. In order to qualify for private loans, students or their cosigners must have an adequate credit score. Private loans are expensive with their high interest rates and therefore, they are used as supplements to federal loans. It is always recommended to exhaust all options, before trying to get a private loan. First look for federal loans, scholarships, grants, and if nothing pulls through, go for a private loan. If you are looking for a loan, a federal student loan is the way to go. When it comes to federal student loan programs, there are two main categories available: Federal Family Education Loan Program (FFELP) and Federal Direct Loan Program. These programs offer several loans through the financial aid offices of schools. Within these loan programs are different types of student loans, including the Federal Stafford Loans (which include the Unsubsidized Stafford Loans and the Subsidized Stafford Loans), Parent PLUS Loans, Graduate PLUS Loans, Perkins Loans, and Consolidation Loans. The difference between getting a federal student loan through the Federal Direct Loan Program and the Federal Family Education Loan Program (FFELP) has to do with the lenders that provide the funds. The Federal Family Education Loan Program (FFELP) funds are provided by private lenders (but guaranteed by the government), while the Federal Direct Loan Program finds are provided by the government. Besides having low interest rates and allowing deferred payments, federal student loans can be consolidated into a Consolidation Loan after a student graduates. This means even more benefits. With so many different types of loans around, things can get confusing. If the loan just isn’t enough, work-study programs are another source of financial aid worth checking out.