Student Loans
If you’re considering applying for a student loan, you should first know what types of loans are available, as well as the basic structure of each loan type.
Student loans fall into two categories, federal and private. Each type of loan has its own structure and guidelines that must be followed. You should research both carefully to determine which loan type best suits your particular circumstances.
Federal student loans include; direct loans where the lender is the U.S Department of Education, Federal Family Education Loans (FFEL), a private loan that is backed by the government, and Federal Perkins Loans. All three loan types are subject to government regulation and oversight. Private student loans, also known as “alternative loans”, are those loans offered by private lenders, this type of loan does not include the benefits and protection that a Federal student loan may offer.
Federal student loans offer the advantages of lower and fixed interest rates, as well as more flexible repayment terms than many private student loans. Loan forgiveness can also be an advantage with a Federal student loan. In this case, the government may cancel all or part of an existing student loan in exchange for performing military service, volunteer work such as the Peace Corps, teaching or practicing community medicine, or other criteria. Federal student loans also offer some tax advantages with a $2,500 interest deduction.
Private student loans are loans offered through private lenders, such as banks or other consumer credit organizations. These loans may require a co-signer if you don’t have an established, positive credit history. A private student loan should be considered only if you have exhausted all avenues for Federal aid, or if you require additional financing beyond your Federal student loan to complete your education.
Regardless of which loan type you choose, you should research each loan carefully and be certain you understand the loan structure and repayment schedules.
