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Different Types Of Student Loans
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There are three types of student loans: federal loans, private loans, and refinance loans. Let’s look at each of these loans in details:
There are three types of student loans: federal loans, private loans, and refinance loans. Let’s look at each of these loans in details:
1. Federal Loans
The government gives these loans, and the Congress determines their interest rates annually.
These are the best options for any student, and here are a few reasons why:
❖ You can get your loan written off if you work for a public organization after school.
❖ They offer low-interest rates.
❖ Your credit score is not considered in your application.
❖ You can set up your loans to be deducted from your income when you start working.
❖ Any student can apply as long as you have a high school diploma.
There are three types of federal loans: Direct subsidized loans, direct unsubsidized loans, and Direct PLUS loans. Let’s briefly look at each of them.
❖ Direct subsidized loans are for undergraduates only, and they have an annual and total cap. This means there’s a limit to the amount you can get in a year or even from a particular loan type.
❖ Direct unsubsidized loans are for both undergraduates and graduate students. They also have an annual and total limit.
❖ Direct PLUS loans are for professional students, parents of dependent undergraduate students, and graduate students. Direct PLUS pans do not have any limits. However, they have relatively higher interest rates.
2. Private loans
Credit unions, banks, and states give these types of loans.
You should only apply for private loans if you have exhausted all your federal loan options, you have a co-signer, or you need more money than federal loans can offer.
Private loans have higher interest rates than federal loans, and they cannot be “forgiven.”
Different types of private loans include:
❖ Bar exam loans: These types of private loans cover law students’ expenses while preparing for their bar exams. You should know these loans do not cover the fee for the actual exam.
❖ Medical school loans: If you’re a medical student with good credit history and score, medical school loans are very good for you. This is because they offer very low-interest rates.
❖ Loans for students with bad credit: Some private lenders specialize in lending to students with bad credit scores. However, most of these loans have higher interest rates, and a co-signer might be compulsory.
❖ State loans: State governments provide these loans. However, they are structured like private loans. Examples of states which offer loans include Massachusetts, Kentucky, Rhode Island, New Hampshire.
3. Refinance loans
Private institutions are also providers of refinance loans. It mainly involves a private lender paying off your existing loans and giving you a lower interest rate and a new repayment schedule.
You need to have a credit score of 690 or higher to qualify for this type of loan. There are three types of refinance loans, and they include:
❖ Parent PLUS loans: These are options for parents of dependent undergraduate students to pay off their direct PLUS loans. They generally have higher interest rates, but they might get lower interest rates if the parents have a good credit history.
❖ Refinancing medical school loans during residency
❖ Refinancing medical school loans after residency.
You should know that once you include federal loans in refinancing plans, they cannot be written off again. So, if you want to enjoy that benefit still, do not subscribe to these types of loans.
