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Student Loans Ins and Outs

Subsidized and Unsubsidized Federal Student Loans are loans that the student borrows directly from the U.S. Government.

Subsidized federal loans are made available to undergraduate students with financial need, and the government will pay the interest on these loans during the time that the student is in school at least half-time, as well as at any future time in which loan payments are deferred. This flexibility makes these loans a very cost-effective way for students to borrow money. The school will set the amount that a student may borrow in a subsidized federal student loan and this amount may not exceed the student's amount of unmet financial need.

Federal Student Loans

Unsubsidized federal loans are available to graduate students as well as undergraduates, and they do not depend on your level of financial need. The school will still set the amount that you can borrow with this type of student loan, and you will be responsible for paying interest during the entire lifetime of the loan. If you defer payment on your unsubsidized federal student loan while you attend school, the interest will continue to accrue and will be added to the principal that you owe.

PLUS Loans are student loans which are taken out by the parents of undergraduate students or by graduate students. They have higher costs associated with them than other types of federal student loans, and the borrower has to be able to display a good credit history in order to qualify for them. The repayment terms on these loans are less flexible than other types of federal student loans.

Private Student Loans

Private or alternative student loans are offered to students and their families by banks and financial institutions. The fees and interest on these loans will vary from bank to bank and will also depend on the borrower's credit score. The amount that private lenders will make available is not limited to a student's immediate expenses, and for that reason, it's important to be very careful when taking out this type of student loan.

Before signing a promissory note for any student loan, it is crucial to take the time to learn certain facts about what you are agreeing to do. You should be aware of how much you'll end up paying back over the life of the student loan, and also of what sort of repayment flexibility is available.

Federal student loans offer the greatest amount of repayment flexibility. The federal government has a special program known as Income-Based Repayment or IBR. This program allows you to change the size of your student loan payments when your income changes. This means that if you have a financially difficult period, your loan payments will not become unaffordable. In conjunction with the flexible payment size, subsidized federal student loans also include the option to have the government pay the interest on your student loan for up to 3 years. Some parts of the principal on a student loan can also be canceled or forgiven if you work in a specific job or location that is considered to be in the public interest.

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