Key Facts About Student Loans that Every Student and Parent Needs to Know

Federal Loans

If you’re like more than 85% of students applying for college, you will need financial assistance to help pay for college. This may include grants and scholarships. The alliance has given out millions of dollars in scholarships since 1996. But loans still make up the vast majority of aid that’s available. Here’s a quick guide to government and private loan programs work. 

The first kind of federal aid available is the traditional student loan. You borrow money for your education and repay the loan over several years with interest. The full amount of the loan plus interest must be repaid to the lending institution. There are three main types of federal student loans:

  • Perkins loans. Full-time or part-time undergraduates can receive up to $5,500 a year, with a maximum of $27,500 during their entire undergraduate career. The amount you receive depends upon your financial need, how much other financial aid you’re receiving, and the available funds at your school. Generally, Perkins loans go to students who demonstrate the greatest financial need, with Federal Pell Grant recipients getting top priority. Depending on the amount you borrow, you have up to 10 years to repay the loan. Perkins loans are repaid directly to your college.
  • Direct loans. These loans are administered by the US Department of Education. Under the Direct Loan Program, the funds for your loan come directly from the federal government. There are two types of Direct Loans: subsidized and unsubsidized. Subsidized loans are made to students who have demonstrated financial need and have slightly better terms as a result (i.e., the government pays the interest on your loan while you are still in school). Unsubsidized loans are available to anyone and have less favorable terms.
  • Direct PLUS loans for parents. These loans are made to parents who are contributing to their child’s college education. Interest rates are higher, and there is no need-based qualification. Parents need to have a good credit history and be claiming their child as a dependent on their taxes.

It’s worth noting that government loans like these may be eligible for a number of loan forgiveness programs. In addition to the federal loan forgiveness program announced in Fall 2022, there’s Public Service Loan Forgiveness. It can provide debt relief to teachers, nurses, firefighters, and other public servants after ten years of service.

“I was lucky to have a successful career as a model, but that was just a way to pay off my college loans.”

—Padma Lakshmi, from Forbes

State and Private Loans

Most states offer student loan programs as a supplement to federal programs. In Alaska, for example, the Alaska Commission on Postsecondary Education offers grants, scholarships, and loans to Alaskan students studying both in-state and out-of-state. Information for each state can be found at www.CollegeScholarships.org.

Private loans are also available through banks, credit unions, and other lenders. Usually, these loans have the least favorable terms. But if you or your family have a relationship with a particular financial institution, this may be an option worth checking out. Also, you can ask the college’s financial aid office if they have a specific lender they work with; often, these are the best private loan deals.

While the terms of state and private loans might not be as favorable as the federal loans, they do offer a competitive option for students seeking additional financing.

And while the number of state and private programs is too numerous to list here, a simple Google search, “student loans in <<your state>>”, will turn up many resources that are available to you. 

Good luck.

Don’t let the cost of a college education deprive you of its benefits. Check out these Alliance articles about college costs and finances, grants, and scholarships. Be sure to check out The Alliance College Guide. It explains what you need to know about choosing, preparing for, applying to, and paying for college. All in clear, no-nonsense language.

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