A Student Loan is money borrowed to cover the cost of Higher Education (Community College, University, Professional and Trade Schools) that then must be paid back with interest at a later date. There are usually two options when it comes to Student Loans: Federal and Private.
Federal Student Loans come from the Government and are accessible through the Financial Aid (FAFSA) process. A Private Loan comes from a private organization like a Bank, Credit Union, and State-Based or State-Affiliated organization and can be used to fill in what Federal Loans can't cover.
To find out more about the different types of Financial Aid visit our College & Financial Aid Resources Guide.
Federal Student Loans
There are few types of direct loans available through Federal:
Direct Subsidized loans have slightly better terms than unsubsidized. With a Subsidized loan the Department of Education will pay interest on the loan while:
For Unsubsidized loans you are responsible for paying the interest of the loan during all periods, if you choose not to pay off the interest it will accrue and be added to the principal amount of your loan.
A federal student loan, made through the William D. Ford Federal Direct Loan Program, that eligible students and parents borrow directly from the U.S. Department of Education at participating schools. Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans are types of Direct Loans.
Fixed means that the interest rate will remain the same for the life of the loan. These interest rates tend to be lower than variable interest rates.
Variable means the interest rate will change over the life of the loan, depending on the federal fund rate, and can affect the monthly payments. These tend to start off higher and can lower over time.
Simple daily interest formula:
Interest Amount = (Outstanding Principal Balance x Interest Rate Factor) x Number of Days Since Last Payment<