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Student Loans and Debt Repayment: Student Loans

What are Student Loans?

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.

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Private vs. Federal

 Private Student Loans

  • Provided by Private Organization
  • Terms and conditions are set by the lender
  • Higher Variable Interest Rates
  • Limited Repayment options
  • Higher limit for money that can be borrowed than Federal

Learn more about Private Student Loan options here

Federal Student Loans

  • Provided by the Government
  • Terms and conditions set by law
  • Fixed Interest Rates
  • Different Repayment Plans
  • Set limit for the amount that can be borrowed

Types of Federal Loans

There are few types of direct loans available through Federal:

  • Direct Subsidized
  • Direct Unsubsidized
  • Direct PLUS for Graduates and Professional Students 
  • Direct PLUS loans for Parents

Direct Subsidized loans have slightly better terms than unsubsidized. With a Subsidized loan the Department of Education will pay interest on the loan while:

  • you are in school at least part-time,
  • during your grace period (the first 6 months after you leave school)
  • during a period of deferment 

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.

Interest Rates

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<