By: Emily Ferreira, Managing EditorGraduating from college is an uplifting experience; it’s what comes next that’s the hard part. You’re now in the “real world” and, as a result, you have to face the realities that come with it, like paying back that student loan you signed up for. Your first issue may be identifying exactly what having a student loan means or what student loan company you even went through. First and foremost, the college student loan meant an opportunity for you to complete your education. A student loan is a loan offered to students to assist in payment of the costs of professional education. Simple, right? But what comes with these loans? Typically, college student loans have lower interest rates than other types of loans, which makes repayment a bit easier for the new graduate. The Federal Government and private student loan companies, such as Sallie Mae, are the major providers of student loans in the US.
Student loans can be granted to students actively enrolled or planning to become enrolled in classes or to parents of such students. The difference between student, parent, and graduate student loans is the loan amounts issued and the repayment schedules allowed. Parents are generally allowed a higher loan limit but are expected to begin payment on the student loan and interest immediately to the Federal Government or student loan company that financed the amount. Students are allowed a “grace period”, usually of six months, for repayment as long as they are enrolled in at least half time status or half of what would be considered a full semester class load. If they drop below this status, their grace period will begin, at the end of which they must begin making payments on the borrowed amount. If, after a student drops below half time status, they re-enroll in at least half time status, their student loan payment will be deferred. However, once they are no longer considered at half time status, they will no longer have their grace period before repayment begins. Additionally, the total student loan amount they may borrow is generally limited significantly.
Several varieties of student loans exist within the Federal and Private sectors. Federally sponsored student loans can include Perkins Loans, Stafford Loans and PLUS Loans. The Perkins loan is offered to students demonstrating financial need and offers a fixed 5% interest rate and nine-month grace period, as opposed to the more common six-month grace period. Additionally, the Perkins loan is a subsidized student loan, which means that interest does not begin to accrue until the borrower begins to repay the loan. The Stafford loan can also be federally sponsored, but differs significantly from the Perkins college student loan as it can also be obtained from a private lender and may be either subsidized or unsubsidized. Stafford student loans have a dual structure interest rate that sets them apart. While the student is in school and during their grace period, the interest rates are lower. However, once they begin repayment, interest rates will increase. PLUS loans differ from both of these varieties of student loans. A PLUS loan is made to the parent directly, though recently these parent student loans have also been made available to graduate students as well. These student loan amounts are often much higher, however, the parent is responsible for beginning repayment immediately. Additionally, the interest rate on these college student loans was raised to 8.5% as of July 1, 2006. By contrast, private student loans are generally obtained from a separate student loan company and their interest rates are often higher than government loan rates and allow for larger sums to be borrowed. The interest rates are usually based on one or multiple financial factors such as the current Prime rate, The Wall Street Journal, the London Interbank Offered Rate or the British Bankers Association. It should also be noted that money paid toward interest on any college student loan is tax deductible, which is a major benefit and incentive for both student and parent borrowers.
