Loan Types
This page describes the types of loans that are commonly used for educational
purposes. For official definitions please go to the
U.S. Dept. of Education
- Alternative Loans
Alternative Loan is another name for private loan.
- Consolidation Loan
A Consolidation loan is when two or more loans are combined into one loan.
Federal loans can be consolidated one time. The interest rate will be the
weighted average of all of the loans being combined. Usually private
loans can not be consolidated with federal loans. However, some lenders
are allowing their own private loan to be combined with federal loans, as
long as the borrower has a private loan with them previously.
Consolidation loans usually have a fixed interest rate. Check with your
school and your lender to learn more about your consolidation options.
You can go here to learn more and apply
for a consolidation loan with an outside lender.
- Direct Loan
Direct Loans are similar to Stafford loans and are governed by the same rules and eligibility standards. Direct loans come from the Federal government and not individual private banks as Stafford loans do. Schools can choose which lending option they prefer and will usually either do Stafford loans or Direct loans but not both.
- Direct To Consumer
Many lenders offer loans directly to students or parents of students that
do not need to go through the school or the Financial Aid Office.
Because of this, they do not need to be certified by the school and they
will disburse directly to the borrower instead of disbursing directly to
the school.
Generally, these types of loans will have a higher interest rate than the
loans that go through the school and they might have additional fees since
the level of control of the school is not in place for these loans.
While they might be seemingly easier to get, there also might be a higher
price to pay for that ease. We recommend checking with your school and
proposed lender to get as many details as possible.
- Graduate PLUS Loan
The Graduate PLUS loan is a new additional loan for graduate students that they can request above and beyond the traditional Stafford loan, if their program as a Cost of Attendance that allows for additional financial aid.
- Perkins Loan
The Perkins loan is a student loan offered by the federal government based on financial need according to the completed FAFSA information. The loan is given by the school depending on who they deem are the neediest students. It has a fixed interest rate of 5% and the interest is subsidized.
- PLUS Loan
PLUS, stands for Parent Loan for Undergraduate Students.
The PLUS loan is a loan in the parents’ name, not the students’ name,
and is used to pay for any educational expenses within the schools’
established cost of attendance.
Parents may pay the entire educational cost with a PLUS loan.
Parents do not need to file a FAFSA to apply for a PLUS loan.
Separate application is necessary for a PLUS loan.
The interest rate is a fixed rate of 8.5% but can be lower depending
on the lender chosen and the borrower benefits offered by the lender.
Payments are usually required within 60 days of the second disbursement
but many lenders do offer payment deferments for up to four years.
Please check with your school to learn the quickest and easiest way
to apply for and process a PLUS loan.
- Private Loans
Private loans are loans that are offered by private banks. A separate loan applications must be filed. The interest rate for private loans will vary depending on either the Prime Rate or the LIBOR rate. The interest is not subsidized. Interest will accrue once a disbursement is made to the school and will continue accruing through deferment, the grace period, and repayment, until the loan is paid in full.
- Stafford Loan
Stafford loans are federally guaranteed student loans that are
disbursed directly to schools on behalf of students by private banks.
The student chooses the lender. As of July 1st, 2006 the interest
rates for Stafford loans are fixed at 6.8% for all enrolled students.
Stafford loans can be subsidized or unsubsidized, depending on the
financial need of the student according to the results of a completed
FAFSA. Application for the Stafford loan can be made by filing the
federal FAFSA form at
Federal Student Aid
office of the U.S. Dept. of Education.
Check with your school to see their preferred method of application
and processing.
- Subsidized Loan
Subsidized loans are loans that the government is paying, or subsidizing, the accruing interest of the loan on behalf of the borrower while they are enrolled at least half time in a degree seeking program or if they are in their grace period. Three common types of subsidized loans are Stafford, Direct, and Perkins loans.
- Unsubsidized Loan
Unsubsidized loans are loans where interest is accruing on the loan whether the student is enrolled or not or if the student is making payments on their loan or not. Stafford loans can sometimes be unsubsidized or subsidized depending on the students’ eligibility. All private or alternative loans are also unsubsidized as well as PLUS loans for parents.