Student loans come in various packages, sizes, and usually have varying features that are dependent on where the loan is obtained from. The two major types of student loans are federal and private. Federal loans are are made by the government, where private loans are made by private bands. There are even large differences between these types of student loans, which is what this article will quickly focus on.
Federal loans are either subsidized or unsubsidized. Either way, both types of loans are guaranteed by the U.S. Department of Education. Subsidized eduloans have lower interest rates because the government pays a portion of the interest. Unsubsidized eduloans, on the other hand, likely have similar interest rates to those had in the private loan sector. Both types of loans offer a grace period post-graduation, usually of 6 months, to allow students to incur some sort of job and income before payments start.
Private student loans are almost never subsidized, so the student will be on the hook for all of the interest. Interest will even incur during the student’s time in school, which does not occur with subsidized eduloans. There is generally a larger availability of private loans, but these types of student loans most likely have higher interest rates, stricter terms, and more requirements to meet before eligibility. Even though there are more private eduloans out there, that doesn’t necessary mean that the loans are easier to get or better for the student.
Student loans are a necessary evil of higher education, unfortunately. While there is not much a student can do to get around them, besides working during school and receiving merit and need based grants and scholarships, the student should still be educated on what type of loans they are receiving before acceptance. Make sure that the interest rate is relatively low based on the time’s average, make sure the payment period starts only after a grace period, and ensure that the loan has terms that you agree with.
