By: Gaurav Bhola, MSM, Managing EditorA university and college education is the most important aspect of a person’s life and has become one of the most expensive one as well. The college tuition of private colleges and universities can reach $50,000 a year. Also, the increase in college tuition averages 14 percent annually. Even though higher education tuition at public universities is lower than their private counterparts, their costs have risen as well.
It is little wonder that students and their families are accessing student loans at greater frequencies to pay for college. Last year, more than $78 billion in private and federally guaranteed school loans were taken out. Millions of students depend on student loans to pay for college, financial aid is critical to maintaining their continuous schooling.
There are three types of basic student loans that you should know about: direct federal loans, federal loans offered by private student loan lenders which are guaranteed by the government; and private loans provided private lenders with no government guarantee.
Students should first attempt to access federal student loans, either made by the federal government, or another lender, because the interest rates of these student loans are capped at a fixed interest rate by federal law. Student financial officials should first steer you towards federal loans first.
The most common federal loan is the Stafford loan, available to all students irrespective of financial aid need. Stafford loans can be received either directly from the government or private lenders. Meanwhile, Perkins loans are provided to students in greatest financial need.
Some students are awarded federal Pell grants based on income, students from low-income families. Also, parents of students can take out federal loans, known as Parental Loans for Undergraduate Students or PLUS loans. You can further learn about federal student loans on the Education Department’s website.
At present, the interest rates on a Stafford loan is 6.8 percent, Perkins loan is 5 percent, PLIS loan is 7.9 percent, and direct loan program is 8.5 percent.
But the federal government imposes limits on the amount lent to students. For example, a first year student can take out $3,500 in Stafford loans, $4,500 for the second year, and $5,500 in rest of the years for a maximum loan amount of $23,000. .
Just like the federal guaranteed and direct federal loans, private student loans offer students access to funds to complete their higher education.
For those students in need of additional funds to complete their education, private student loans can provide that extra benefit. Private loans also come in handy if a student isn’t able to obtain federal grants or loan subsidies. These loans can help supplement your existing loans. All in all, the escalating costs have ensured student dependence on student loans while pursuing higher education.
