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Everything You Need To Know About Student Loans

by Margaret Hurst
Marketing Specialist

June 19, 2015

Student loans, as opposed to scholarships and grants, have to be paid back when you graduate or drop below half-time enrollment. Student loans are a big commitment and responsibility so you need to make sure that you have all of your facts straight.

There are a lot of options for student loans and lot of terminology that you may not have come across before. We’re here to help decode the student loan terms you might be unsure about so you can make the best financial decision for yourself.

Federal Loans – Loans funded by the federal government. There are four types of federal loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Federal Perkins Loans.

Direct Subsidized Loans – Federal loans for undergraduates who demonstrate financial need. Your school determines how much you can borrow, and the U.S. Department of Education pays the interest while you’re still in school and for a 6-month grace period following graduation. Also know as Stafford Loans. Learn more here.

Direct Unsubsidized Loans – Federal loans for undergraduates and graduate students. Your school determines how much you can borrow and your eligibility is not based on demonstrated financial need. You pay interest on the loan while still in school. Learn more here.

Direct PLUS Loans – Federal loans for graduate students or the parents of dependent undergraduate students. These loans require a credit check. Learn more here.

Perkins Loans – Federal loans for undergraduate, graduate and professional students with exceptional demonstrated financial need. The interest rate is 5%. Learn more here.

Private Loans – Loans offered by non-federal lenders like banks or credit unions. Private loans often have less flexibility with pay-back options than federal loans and high-interest rates.

Free Application For Federal Student Aid (FAFSA) – A free form that you must fill out to be eligible for federal loans as well as other forms of financial aid like scholarships and grants.

Interest Rate – The percentage at which interest is calculated on your loan.

Principal Balance – The total amount of the loan, including interest that has been capitalized.

Disbursement – Payment of a federal loan amount to the student by the school.

Grace Period – A period of time, usually 6 months, after a student graduates or drops below half-time enrollment during which the student does not need to make payments on the loan.

Loan Servicer – A company that collects payments from the student and facilitates the loan pay-back process on behalf of the lender.

Financial Need – The difference of your cost of attendance at your school, less your Expected Family Contribution.  

Consolidation – Combining two or more loans into a single new loan.

Deferment – A period of time where you postpone your loan payments and often do not accrue interest.

Loan Forgiveness – In some cases federal loans can be forgiven, meaning that you become no longer responsible for the loan or interest accrued. This is rare, and a list of possible reasons for forgiveness is available here.

Before taking out a loan, be sure to research the interest rate, grace period and terms of repayment before signing on the dotted line. Discuss your decision with family, loved ones and a financial aid counselor. And remember, only borrow as much as you need. The more you borrow, the more interest you’ll have to pay in the long run.

Loans can be a great way to pay for school, but just remember that you will need to pay back the money—plus interest.

To learn more about student loans and other forms of financial aid, visit

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