You’re headed to college. You’ve decided that in order to help pay your steep tuition rates, student loans are the way to go. There’s only one problem: you don’t how to acquire a student loan. That may seem like a massive roadblock. But, after a quick run-through of some basic terminology and concepts involved in student loans, you’ll probably have a much more positive outlook on the process. Here is our guide to student loans, with some terms you should understand before you begin your course of action:
This acronym, which stands for Free Application for Federal Student Aid (FAFSA and CSS), describes a vital step in the federal loan process. All federal loans are provided through filling out a FAFSA form, which asks for both clerical information such as one’s social security number and confirmation of citizenship as well as more academic information like one’s GPA. The form goes live on October 1 of each year, but the deadline varies depending on your home state.
Federal Student Loan
As you could probably guess, federal loans come from the government, mostly through the FAFSA program (discussed below). A federal loan differs from private student loan in more than name; their available funds can be a bit more unpredictable, since they are dependent on government spending. Additionally, federal loans may offer fixed interest rates, which can benefit students who are uncertain about their financial future upon graduation.
Private Student Loan
Simply put, a private loan is defined by the money that funds its program. If a loan does not come directly from the federal government, it is private. Private loans stem from multiple sources, including community organizations, nonprofits, corporations, and even universities themselves. The interest accrued on private loans can be deducted from taxes, making them attractive to certain students depending on their priorities.
Direct PLUS Loan
One of a few federal loan options, a Direct PLUS Loan applies directly to your parents instead of you if you’re an undergrad student. You will receive a maximum loan amount of your school’s full tuition and receive a loan on a fixed interest rate of 6.31%. Direct PLUS Loan recipients will not have to repay any portion of their loan while they’re in school. Instead, they start paying the loan back after graduation.
Direct Consolidation Loan
A Direct Consolidation Loan refers to a process where loans, each from a different one source, are combined into one (much more straightforward) loan to pay off. Like every other student loan process, there are pros and cons to consolidating loans. For one, obviously, it’s much simpler to repay one loan than, say, three, because all your funds will be going to the same place. Additionally, consolidated loans sometimes extend the repayment period, meaning that you’ll have more time to come up with the money you owe. On the other hand, if the repayment period is longer, your interest rates will go up. It’s a trade-off, so be sure you understand the consequences before you take the leap.
For More Information on Student Loan Basics…
College Raptor is all about paying for college, so we’ve collected a number of useful student loan articles right here!
- Types of Student Loan Repayment Plans
- Student Loan Glossary
- How do I Begin Looking for Student Loans?
- What’s the Difference Between a Variable Rate and a Fixed Rate?
- How to Pick the Best Student Loan for You
- And even more on our Student Loans page!
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