What to know about Student Loan programs: Types and Benefit

What is Student Loan Program?

A student loan program is a program designed to help to fund borrowed or lent to a student to pay for post-secondary school studies, such as degree studies, a master’s degree program, and a Ph.D. program, by the federal government, state government, or private sector. 

The loan may cover the student’s tuition, living expenses, travel, and accommodation expenses.

It may differ from other loans because the interest rate will be substantially low and the loan repayment will be delayed while the student is still in school.

Advantages of Student loan

  • Student loan programs offer financial support to students whose parents can not afford money for their post-secondary education.
  • Student loans often have lower interest rates compared to private loans.
  • Many student loans do not require repayment until after graduation, and they have additional options for loan forgiveness when applicable.
  • Fixed interest rates prevent the terms of a loan from changing over time.
  • Student loan programs often provide flexible repayment plans.
  • Student loan programs do not require any proof of a fund show.
  •  Student loan programs can cover education expenses be they government or private.

Disadvantages of Student Loan

  • There are limits to the amount of federal aid an individual can receive.
  • If a student defaults on the loan agreement it may lead to consequences.
  • If you do not finish the program because of academic failure, the student has to pay back.
  • Private student loans may require a cosigner.
  • Defaulting on student loans can result in a decreased credit score.
  • Interest rates on non-government student loans may not be stable.
  • Some students may not qualify for some loans because of financial needs.

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How to Get a Student Loan in Nigeria:12 Top Banks and Their Requirement

Types of Student Loan Programs

Federal and private student loan programs can help reduce financial instability and fulfill your dream of education.

1. Federal Student Loan

A federal student loan program is money borrowed from a student by the government with terms and conditions set by law to pay for your education and repay it later with interest. This type of loan has a fixed interest rate and can have income-driven repayment plans and payment flexibility.

2. Private Student Loan

Private student loan programs are issued to the student by institutions like banks, credit unions, schools, and even state agencies. The interest rate can be fixed or vary depending on the borrower. The institution that issues the loan can deviate from the original plan at any point in time. 

Types of Federal student loan Programs

  • Direct Subsidized loan
  • Direct Unsubsidized loans
  • Direct Plus loans
  • Federal Consolidation

a.Directly-Subsidized Loan

Directly-subsidized loans have a better option than other categories of federal government loans. The loan is based on financial needs and is the best option for undergraduates with financial needs. Those under direct subsidized loans have the option of payment after six months out of school and another period of deferment. Undergraduates with financial needs must be U.S. citizens or permanent residents and meet other eligibility requirements. The repayment period is up to 10 years.

b.Direct Unsubsidized Loan

Direct Unsubsidized Loans: the student or borrower does need to demonstrate financial need; the interest starts to accrue immediately; the borrower is responsible for the interest rate payment, even the one that accrues during deferment and the grace period; an individual must be a U.S. citizen or permanent resident and meet other eligibility requirements. The repayment period is about ten years.

c.Direct Plus Loan

Direct PLUS Loans are a federal type of student loan that is credit-based. It is for graduate, professional, and parents of dependent undergraduate students who have higher interest rates and higher loan origination fees than direct subsidized or unsubsidized federal student loans. The borrower’s credit history may affect the loan application. An individual must be a U.S. citizen or permanent resident and meet other eligibility requirements. The loan repayment period is about ten years.

d.Federal Consolidation Loan

Federal consolidation Loan here borrower is allowed to combine multiple federal student loans into one with a fixed interest rate when combined the borrower is requested to pay the average consolidated loan. the student loses the benefit of an interest rate discount.

Types of private student loan borrowers must have good credit and a steady income to be eligible. the repayment period is 5 to 25 years

Types of federal student loan

a.State loan programs. Are loans run by state agencies, but the loan program is the same as the private student loan. You can do well to enquire about your state. Visit your state Department of Education website to learn more about this.

b.Profession-based loans. These are loans issued by professional bodies to help their student cover Educational expenses. Medical school loans, Bar exam loans, and business school loans.

c.International student loans. This type of private loan is issued to international students studying in other countries.

d.Borrower-specific loans. There are also private student loans tailored to borrowers with unique financial circumstances, such as parents of the student or those who are unable to find a cosigner.

Types of private student loan programs

Private student loan programs are taken out by the student they’re often cosigned by a parent or another creditworthy individual.

Parent loans are another way to get money for college. A parent or other creditworthy individual takes out a loan to help their student pay for college

Consider what type of loan to apply

Consider federal government loans when applying because there are differences in interest rates, repayment options, and other features that are better than private loans.

Private student loans are better for students who do not qualify for federal student loans because of their citizenship status or who need to borrow far more than what the federal student loan programs can issue. Private student loans may also be a good option for borrowers with excellent credit since some lenders offer lower starting rates than the federal government.

Application for Student loan

The application process for Student loan both Federal and Private depend on where the student is applying for financial aid. 

To apply for a federal student loan, you will complete a Free application for student (FAFSA) and submitted in time for the process to begin. It will also help to check your eligibility.

The free application for a Federal student loan will help check other areas you might be eligible for, like Scholarships. Note after six months you need to start your interest payment.

Private loans might be a good idea to compare rates and terms, student needs to check with individuals, banks, and states who are lenders to learn and know how to apply. The mode of payment will be discussed with the borrower.

Follow the steps below to apply online

  • Go to the borrower’s website. 
  • Check the interest rate of the loan you are applying for and the flexibility of the interest repayment and other benefits.
  • Apply directly on the official website. 
  • Choose the preferred type of repayment option you want.
  •  Add a cosigner, which may increase the chances of getting the loan.

Conclusion: This content discussed what a student loan program means, its types, what each one involved, and how to apply, and think rightly before going into any of the student loans.

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