About Student Loans

Understanding more about how student loans work is a great first step to reducing your student loan debt. Before you consolidate, brush up on some student loan debt facts here.

What Student Loan Debt Is

A student loan is a type of financial aid that you must repay, with interest. This is in contrast to scholarships, for instance, that you are not required to repay. Student loan debt comes from both private and federal sources. Not everyone qualifies for federal student loans, as they are often need-based. Private student loans are usually credit-contingent, and thus often require a co-signer. Federal law imposes caps on the maximum fees and interest rates that lenders can charge on federally-backed student loans. Lenders may never exceed these limits, but they may charge lower fees, if they wish.

Categories of Student Loan Debt

Student loan debt usually falls into three main categories:

• Student loans. These student loans include Stafford loans, Perkins loans, Grad PLUS loans, and others. This category is limited to federally-guaranteed student loans. Stafford loans can be subsidized or unsubsidized. With subsidized loans, the government pays the interest on your loan while you are in school. Subsidized Stafford Loans require you to demonstrate financial need. Unsubsidized Stafford Loans, on the other hand, do not require financial need, but you have to pay all the interest on the loan. Perkins loans are reserved for undergraduate and grad students who demonstrate exceptional financial need. Grad PLUS loans are for graduate students to pay for their education.
• Parent loans. This type of student loan debt represents loans taken out by the parents of students to help finance a child’s education. Parent loans, or PLUS loans, allow parents to borrow money for education costs not covered by their child’s financial aid package. The federal Parent Loan for Undergraduate Students lets parents borrow up to the full cost of attendance. PLUS loans are provided through private lenders and directly through the government.
• Private loans. Private or alternative student loan debt is a way to supplement the financial aid you receive from the government. Often, government aid is not sufficient to cover the full cost of attendance, so many students seek private loans in addition to their federally-guaranteed debts. Private loans often give borrowers more flexible repayment options than their federal counterparts. Your credit score will determine both your eligibility for private student loans as well as the terms and rates you will receive.

Are you eligible for student loan consolidation? Find out and start saving money today.