What are Student Loans?

Education is powerful. Having the right education is a prerequisite for many of today’s top careers and often reflects a person’s lifetime earning potential. Thanks to the wide availability of financial aid packages and student loans, almost anyone can get the education he or she needs.

If you are preparing for college for the first time, have children who are planning to attend, or are returning to school to further your education, understanding how student loans work is just vital. And if you are paying existing student debt, knowing your rights and responsibilities can help you pay your loans off in way best suited for your life.

Continue reading for important information about the types of loans available, how to choose the right loan amount, what to do when you graduate or complete your education.

Types of Student Loans

Like all loans, student loans have interest rates, terms and conditions, and other details and requirements that need reviewing before signing.

The main issuers of student loans are the U.S. Department of Education and private lenders such as various banks or other financial institutions. In certain cases, states and some educational institutions issued loans also.

Federal student loans are available from the U.S. Department of Education under the Direct Loan Program or the Federal Perkin’s Loan Program. Direct loans are issued by the Department of Education and available to most students while Perkin’s Loans are issued by the school attended and are available to students with great financial need.

Direct Student Loan Amounts

Direct Loan Programs

All direct loans are made by (and all payments owed to) the U.S. Department of Education. This applies to any Federal student loan made on or after July 1, 2010. Loans made previously are handled by the lender, which may have included banks, financial institutions or other loan servicers.

Federal Family Education Loans (FFEL) are no longer offered and were replaced by the Direct Loan Program.

Stafford Loans

The most popular federal loans are also known as Stafford Loans and are either Direct Subsidized or Direct Unsubsidized loans.

Direct Subsidized: Available to undergraduate students only. Students must be enrolled in school at least on a halftime basis and demonstrate financial need. Loans are available in amounts from $3,500 to $5,500, depending on grade level, and have a total lifetime limit. Loan interest is not charged while the student is in school or during a deferment period.

Direct Unsubsidized: Available to undergraduate and graduate students. Students must be enrolled in school at least on a halftime basis. Loans are available in amounts from $5,500 to $20,500 (minus any subsidized loan amount) depending on grade level and dependency status. Loans have a total lifetime limit. Unlike subsidized loans, interest is charged at all times.

Direct PLUS Loan: These loans are for the parent of a dependent undergraduate student or for graduate and professional students who attend at least halftime. Like unsubsidized loans, financial need is not required. These loans are available for a maximum amount of the cost of attendance, minus any other loans received. Borrowers with a bad credit history are not approved.

Direct Consolidated Loans. This loan allows students who have completed school or graduated to consolidate their existing loans into one loan. Students must have at least one Direct loan or Federal Family Education Loan (FFEL) that is being repaid or in a grace period. No application fees are charged.

Federal Perkins Loan Program

Perkins loans are available to both undergraduate and graduate students with a demonstrated financial need. Perkins loans are made by the educational institution and are subject to the school's availability of funds (which may vary year-to-year). Undergraduates have a maximum of $5,500 available per year, with a maximum lifetime amount of $27,500. Graduate and professional students can qualify for as much as $8,000 per year with a lifetime maximum of $60,000 (including any undergraduate amount).

Private Loans

Private student loans are essentially personal loans that are used for educational expenses and issued by banks and other financial institutions. Most private student loans require a cosigner. have higher interest rates than federal loans and have less payment flexibility. However, borrowers with excellent credit can shop for the best loan rates, which may be lower than that of federal loans.

State Loans

Student financial assistance, including loan programs, is available at various levels throughout the United States. See our reference section for links to your state's programs.

Choosing Between Federal and Private Loans