Student Loans: Where to Turn First | 08.24.12
You may have heard of Stafford loans, PLUS loans, and private student loans, but do you really know the differences between them? Is one type of loan really better than the other? Let’s find out.
Subsidized Stafford Loans: The Best of the Best
Subsidized Stafford loans are the best type of student loan, and should be taken out before any other type. Stafford loans carry a 3.4% fixed interest rate, and the federal government will cover your interest payments until graduation. Interest will start to accrue after graduation, but you will not be required to make your first payment until 6 months after graduation. As an undergraduate, you can take out a maximum of $23,000 in subsidized Stafford loans in your lifetime.
Unsubsidized Stafford Loans: The Next Best Thing
Unsubsidized Stafford loans are federal loans that have 6.8% fixed interest rate. Contrary to their subsidized counterpart, interest accrues for unsubsidized Stafford loans while you are enrolled in school. However, similar to subsidized Stafford loans, your first monthly payment will not be due until 6 months after graduation. In addition, unsubsidized Stafford loans are also need based, and not impacted by your credit score. As a dependent, undergraduate student, you can take out a maximum of $8,000 for undergraduate studies. Unsubsidized Stafford loan limits vary based on your education status.
PLUS Loans: Situation-Specific*
With PLUS loans, you can borrow up to the cost of education – including room and board, transportation, etc. – minus any other form of aid. PLUS loans carry a 7.9% fixed interest rate, and, contrary to Stafford loans, eligibility is based on your credit score, and unrelated to your financial need. Furthermore, interest will accrue while enrolled in school, but, once again, you will not be required to make your first payment until after graduation.
Private Student Loans: Situation-Specific*
Private student loans generally have a variable interest rate, which is based on the prime or LIBOR index, plus a margin that is lender-specific, and partially determined by your credit score. However, more recently, as noted in a previous blog post (Fixed vs. Variable Interest Rates: What’s the Difference?) certain lenders are beginning to offer loans with a fixed interest rate. Just like PLUS loans, approval is based on credit, and you can borrow up to the cost of your education, plus other fees, minus other forms of aid. Finally, interest also accrues while you are enrolled in school, but you have the option to defer payments until 6 months after graduation.
*Between PLUS loans and private student loans, neither is necessarily better than the other. Rather, they are different forms of loans, and choosing one over the other comes down to your specific situation and preferences. Compare PLUS and Private loans to find out which is best for you.
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