Which Loan Type Requires You to Make Loan Payments While You’re Attending
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If you’re attending school and considering taking out a loan, you may be wondering which type of loan requires you to make payments while you’re attending. The answer may surprise you.
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Subsidized Stafford Loans
A subsidized Stafford loan is a federal student loan that helps eligible students pay for higher education by deferring the loan payments until after graduation. The U.S. Department of Education pays the interest on subsidized Stafford loans while the student is in school, during the grace period, and during deferment periods.
What are they?
Subsidized Stafford Loans are need-based loans available to undergraduate students who demonstrate financial need as determined by the Free Application for Federal Student Aid (FAFSA®). You may hear your school refer to this type of loan as a “direct subsidized loan.”
The U.S. Department of Education pays the interest on a Direct Subsidized Loan while you’re in school at least half-time, for the first six months after you leave school (known as a grace period*), and during a deferment (a postponement of loan payments).
How do they work?
Subsidized Stafford Loans are awarded based on financial need. The U.S. Department of Education pays the interest on subsidized Stafford Loans while you’re in school at least half-time, during your grace period, and during deferment periods. If you have a subsidized Stafford Loan, you’re not responsible for the interest that accrues on the loan while any of these deferment conditions are met.
What are the benefits?
-You can receive a Stafford Loan as an undergraduate, graduate, or professional degree student.
– Stafford Loans have low, fixed interest rates. The interest rate for Loans first disbursed on or after July 1, 2020 and before July 1, 2021 is 2.75% for undergraduate students, and 4.30% for graduate and professional students.
– You don’t have to begin repaying your Stafford Loan until six months after you graduate, leave school, or drop below half-time enrollment.
– You can choose from several repayment plans that best fit your needs, including income-based repayment plans and loan consolidation.
– Stafford Loans are eligible for loan forgiveness programs.
Unsubsidized Stafford Loans
What are they?
Stafford loans are the most common type of federal student loan. There are two types of Stafford loans: subsidized and unsubsidized. With a subsidized Stafford loan, the U.S. Department of Education (ED) pays the interest while you’re in school at least half-time, during your grace period, and during any deferment periods.
With an unsubsidized Stafford loan, you are responsible for paying the interest on the loan while you’re in school and during any deferment or grace periods. If you choose not to pay the interest while you’re in school, it will be capitalized (added to your loan principal balance), and your monthly payments will be higher and it will take you longer to repay your loan.
How do they work?
The Stafford Loan program is the most common type of federal student loan. Stafford Loans are available to both undergraduate and graduate students.
There are two types of Stafford Loans: subsidized and unsubsidized. Subsidized Stafford Loans are need-based loans. The federal government pays the interest while you’re in school and during your grace period. Unsubsidized Stafford Loans are not need-based loans. You are responsible for paying the interest while you’re in school and during your grace period.
Both subsidized and unsubsidized Stafford Loans have a fixed interest rate. The fixed interest rate is set by Congress and changes every year on July 1st. The current interest rate for Stafford Loans is 4.53%.
You can choose to pay the interest while you’re in school or to let it accrue (accumulate). If you choose to let the interest accrue, it will be added to your principal balance (capitalized) when you enter repayment. This will increase the amount of money you have to repay because you will be paying interest on the new, higher principal balance.
The amount of money you can borrow each year in Stafford Loans depends on your year in school and whether you’re considered a dependent or independent student. The maximum amount you can borrow each year is:
-$5,500 for first-year undergraduates (no more than $3,500 of this amount can be in subsidized loans)
-$6,500 for second-year undergraduates (no more than $4,500 of this amount can be in subsidized loans)
-$7,500 for third- and fourth-year undergraduates (no more than $5,500 of this amount can be in subsidized loans)
-$20,500 for graduate or professional students (no more than $8,500 of this amount can be in subsidized loans)
What are the benefits?
In general, subsidized Stafford Loans have better terms and conditions than unsubsidized Stafford Loans. For example, with a subsidized Stafford Loan, you’re not responsible for paying any interest while you’re in school at least half-time, during your grace period, and during certain deferment periods.
With an unsubsidized Stafford Loan, you are responsible for paying all the interest that accrues (accumulates) while you’re in school and during grace and deferment periods.
The other major difference between the two types of loans is that the federal government pays the interest on a subsidized Stafford Loan during certain periods, but with an unsubsidized Stafford Loan, you are responsible for paying all the interest that accrues.
Perkins Loans
Perkins Loans are low-interest federal student loans for undergraduate and graduate students with exceptional financial need. You must repay the entire loan amount plus interest. There is no grace period for a Perkins Loan—you must begin making payments immediately after you leave school or drop below half-time enrollment.
What are they?
Direct Subsidized Loans and Direct Unsubsidized Loans are low-interest loans for eligible students to help cover the cost of college or career school. The U.S. Department of Education offers eligible borrowers Direct Subsidized Loans and Direct Unsubsidized Loans as part of the Perkins Loan program.
To get a Perkins Loan, you must be enrolled at a school that participates in the program. If your school closes before you complete your program of study, you may be able to get a Direct Consolidation Loan to repay your Perkins Loan.
You’re not required to make payments on a Direct Subsidized or Unsubsidized Loan during certain periods. For Direct Subsidized Loans, these periods include:
-During your grace period
-During deferment periods
How do they work?
The Perkins Loan program offers low-interest loans to help needy students finance the costs of postsecondary education. The loans are available to both undergraduate and graduate students who demonstrate financial need.
Under this program, the loan is made by your school and is repaid to your school. There is no grace period; repayment begins nine months after you graduate, withdraw from school, or drop below half-time enrollment.
The loan is made with federal funds, and your school is the lender. You must repay this loan even if you don’t complete your education, can’t find a job after you graduate, or experience other financial difficulties.
What are the benefits?
-You don’t have to make payments while you’re in school or during your grace period
-Your interest doesn’t accrue while you’re in school or during your grace period
-You can have your loan forgiven if you work in certain public service jobs
Parent PLUS Loans
With a Parent PLUS Loan, the parent borrower is responsible for repaying the loan while the student is in school and after they graduate or leave school. If you’re a parent borrower and you have questions about repayment, contact your loan servicer. They can help you understand your repayment options.
What are they?
The Federal Direct PLUS Loan Program helps parents and guardians of dependent undergraduate students pay for their child’s education. PLUS loans can also help graduate students and professional degree students pay for their own education.
PLUS loans are federal student loans that have been designed for parents and graduate and professional degree students. PLUS loans can help you pay for education expenses not covered by other financial aid.
To get a PLUS loan, you (the borrower) must complete a Free Application for Federal Student Aid (FAFSA®) form and be creditworthy. Your child must be enrolled at least half-time in an eligible program at a school that participates in the Direct Loan Program.
How do they work?
PLUS loans help pay for your child’s education after high school. They’re low-interest loans that you can use to pay for education expenses not covered by other financial aid. PLUS loans are available to both undergraduate and graduate students, and parents of dependent undergraduate students can apply for them.
To get a PLUS loan, you (the parent) will need to complete a Free Application for Federal Student Aid (FAFSA®) form and a PLUS Loan Application. Your child will also need to sign the PLUS Loan Application.
You can apply for a PLUS loan at any time during the year. If you’re approved, your loan will be processed and the funds will be sent to your child’s school.
What are the benefits?
There are several benefits to taking out a Parent PLUS Loan to help pay for your child’s education. First, you’ll be able to choose from a variety of repayment plans that are designed to fit your budget. You can also qualify for a deferment or forbearance if you experience financial hardship. And, if you make your payments on time, you can build positive credit history.
Private Loans
Private Loans are a type of loan that you will have to start paying back while you are still in school. This means that the interest will start accruing right away and your loan balance will start to increase. You may have to make interest-only payments or full payments while you are in school.
What are they?
Most students whoborrow private student loans will have to start making payments while they’re still in school—unlike federal student loans, which usually don’t require payments until after graduation. With private loans, you might be able to put off making payments during school if you have a hardship, but interest will continue to accrue and will be capitalized (added to your loan balance), which can increase the amount you have to repay.
There are a few different repayment options for private student loans:
-Immediate repayment: You’ll start making payments on your loan as soon as the money is disbursed. This option usually has a lower interest rate, but it can make it tough to manage your other expenses while you’re in school.
-Deferred repayment: You won’t have to make any payments until after you graduate, but interest will accrue during that time. This option can help make your monthly payments more manageable after graduation, but you’ll ultimately pay more in interest because the accrued interest will be capitalized (added to your loan balance) when repayments begin.
-Interest-only repayment: With this option, you only have to pay the interest that accrues on your loan while you’re in school. You won’t have to make any principal payments until after graduation, at which point you’ll enter into a standard repayment plan. This option can help keep your monthly payments low while you’re in school, but you’ll ultimately pay more in interest because the accrued interest will be capitalized when repayments begin.
How do they work?
Private loans are not based on financial need and generally have higher interest rates than Federal Stafford Loans. Because private loans are not federally guaranteed, the lender bears the entire risk if you default on the loan. You are usually required to make payments while you’re attending school, although some lenders offer deferment options.
What are the benefits?
There are several benefits to private loans, including:
-You can borrow up to the full cost of attendance, less any other financial aid you receive.
-You may have a lower interest rate than with a federal loan.
-You can choose a repayment plan that best suits your needs.
-There is no origination fee or prepayment penalty.
