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These days, potential students have to rely more and more on college loans, grants, and scholarships, which means it’s more important than ever to understand the ins and outs of college loans. There are a plethora of loans out there and before beginning the financial aid process, it is crucial to take a complete look at each and every one of them. In this way, the student – and their parents – can know exactly what they are getting into and what to expect. More than half of all financial aid is made up of loans, some of which are need-based, while others are merit-based.

There are four main types of college loans: federal student loans; private student loans; college sponsored loans; and parent loans. Within federal student loans, there are also four main types, starting with Perkins Loans. As college loans progress, Perkins loans are based on need. They are awarded to students who require the most cash aid and generally come with very low interest rates, sometimes as low as five percent. Perkins Loans are excellent college loans because they do not require students to make payments while they are enrolled in school.

Then there are the Subsidized Stafford Loans, also based on need. This type of college loan comes with a fixed interest rate. Additionally, the government covers interest while the student is in school, during the grace period after graduation, and for any authorized loan deferrals. The third type of college loan classified as federal student loans is unsubsidized Stafford loans. These are not based on financial need and students are responsible for interest, although these payments may defer while enrolled in school, provided they understand that it will apply up front. Lastly, there are Grad PLUS loans, which apply to graduate students.

The second type of college loans are private student loans, which generally come from outside lenders. They are generally not subsidized loans and tend to have higher interest rates. College sponsored loans are the third type of college loan. These, of course, are loans that are offered directly from an individual college. Lastly, there are parent loans, which are divided into two types: federal PLUS loans and college sponsored loans. With parent loans, parents can receive as much as the full cost of attending college, less than any other aid received. The difference is that college sponsored loans generally offer lower interest rates. In both cases, recipients of these loans must begin repaying them sixty days after the money has been applied to college.

There are numerous college loans available to both college students and their parents. Naturally, some college loans may be available to some people without being available to others, but for the most part, there is something available to anyone looking to further their education. In addition to college loans, there are many types of grants available, as well as scholarships too numerous to count. It is simply important to know exactly what is available and what it entails before beginning the financial aid process.

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