American Student Loans

Some say the time spent as a student is the best you’ll ever have. However there is one thing that can put a halt to that enjoyment and replace it with worry and stress. This is money problems. Many undergraduate students experience this problem but most do nothing about it, they just put up with ever increasing pressure. There is a better way to do things, and that is through the use of a student loan. Student loans come in three varieties, a Federal student loan, a parent loan and a private student loan.

A federal student loan works just as it sounds, through the government and there are two types of loans in this category. The first is with the Federal Family Education Loan Program (FFELP) which is just like a normal private loan with a private lender except that it is guaranteed by the government and is at a fixed rate (currently 6.8%). The other type of loan is through the Federal Direct Student Loan Program (FDSLP) and this is where the government loans its own money directly to a student. Both of these loan governmental loan programs are known as Stafford loans. These loans allow undergraduate students to borrow $3,500 in their first year, $4,500 in their second and $5,500 in their third. Another benefit of Stafford loans is that you can have all payments due while studying subsidized by the government; but only if you are deemed to have financial need.

Another variety of loan which is also either FFELP or FDSLP is the parent loan. This can be taken out by parents if they think their child needs more money to get by while studying. As it is expected that the parents will pay the loan off first, the interest rate for a Parent Loan for Undergraduate Students (PLUS) is higher at a fixed rate of 8.5%. However one benefit of this type of loan, is that there is no concrete limit to how much can be borrowed. Also, if this loan is consolidated with others, the interest rate is capped at a lower 8.25%. Unfortunately PLUS loans cannot be consolidated with a student’s loan.

A private student loan is the third variety of loan available to students and this is just where private lenders such as banks and credit unions lend money to students who are having trouble surviving on their current finances. The amount borrowed as well at rates and fees will depend on the student’s credit rating and will typically demand a higher rate than a Stafford loan. The benefit of this loan is that it is normally much cheaper than credit card debt

Although there are three main types of loans, some people will choose to use none while others will attempt to use all three. It is just all a balance between healthy, happy living and a reasonable amount of debt. Too much debt may sink you financially but not enough might be even worse. The best advice is to think through which option is right for you and to discuss this with financially knowledgeable people.