Student loans are loans that undergraduate, graduate and professional students can take out in order to finance the costs of tuition, room and board, books, supplies, transportation and other living expenses. There are two basic types of student loans in the United States — federal and private. Federal loans are backed by the U.S. government, and may be subsidized or unsubsidized. Subsidized federal loans are given to students who demonstrate sufficient financial need, and the government pays the interest on these loans as long as the student is enrolled at least half-time in a college or university. Students with unsubsidized loans must either pay the interest while still in school, or it will be included in the original capital of their loan. Private loans are available from private banks and typically have much higher interest rates.
Federal student loans offer a range of benefits like lower, non-variable interest rates, the ability to defer loan repayments under certain circumstances, repayment flexibility based on the student’s income, and loan forgiveness if the student pursues certain occupations. The various types of federal student loans are:
- Perkins loans, available to students with the most demonstrated financial need, and awarded by the school itself. Undergraduate students may borrow up to $5,500 per year and graduate or students may borrow up to $8,000 per year. The interest rate is 5%.
- Stafford loans, either subsidized or unsubsidized. These popular loans require students to remain enrolled at least half time in an undergraduate or graduate program in order to qualify. Interest on subsidized loans made between 1 July 2012 and 1 June 2013 is 3.4%, and students may borrow $3,500 to $5,500 per year. Interest on unsubsidized loans is 6.8%, and students may borrow between $5,500 and $20,500 per year.
- PLUS loans, which are taken out by the parents of dependent students. Parents must pass a credit check and the student must remain enrolled at least half-time. They may borrow as much as the student needs to pay tuition, buy books and supplies, and cover housing, food, transportation and other necessary costs. The interest rate is 7.9%.
- PLUS loans for graduate or professional students are also available. The terms are the same, but the student is the borrower.
Students can apply for federal student loans by filling out the Free Application for Federal Student Aid, or FAFSA. Students who file the FAFSA may be eligible for federal loans and grants. Under certain circumstances, such as military service, financial hardship, or some types of volunteer service, it may be possible to defer or forbear loan repayment for up to three years.
Students wishing to avoid accumulating excessive student debt may look for funds that do not have to be repaid, including scholarships, grants and awards. Individual schools and private organizations typically offer awards and scholarships based on need or merit. The government offers a number of grants, based on financial need, planned career, and military status. Pell grants are awarded to undergraduate students based on financial need; TEACH grants are awarded to students wishing to pursue a teaching career; FSEOG grants are available to the neediest students; Iraq and Afghanistan Service Grants are available to the dependents of service members killed in one of these wars. Veterans can also take advantage of funds available under the GI Bill to pay for higher education. Volunteer and service programs like the ROTC, the Peace Corps, AmeriCorps, and the National Health Service Corps award scholarships to their members, and help students by repaying their loan debt. Work study programs are available to most students to help them earn money towards their tuition by working on the campus where they attend school.
- Steps to take to avoid defaulting on student loans, from the U.S. Department of Education.
- How to get your student loans out of default, from the U.S. Department of Education.
- National College Finance Center home page, resources to help students pay for college, graduate with reasonable debt loads, and repay loans.
- Student loan debt repayment calculator, to help students determine how long it will take them to repay loans.
- “Funding Your Education” PDF from the U.S. Department of Education.
- Information on federal student loan repayment plans from the U.S. Department of Education.