Like any other kind of loan, student loans are a type of financial assistance that must be repaid to the lender. There are two primary providers of student loans: the U.S. Department of Education, which offers a number of federal student loan programs, and private sector banks, financial institutions, and commercial lenders, which offer private loans.
Both federal student loans and private loans require paying interest and an origination fee on top of the lump sum of loan money. The origination or activation fee is a one-time charge that you pay the lender for creating the loan; the interest is a percentage fee that accumulates over time from the date the loan money is paid out to you. Federal student loans usually offer better interest rates and loan terms and conditions than private loans. For this reason, all government, school, and private student aid experts advise that you apply for and take advantage of as much as you can get in federal student loans before seeking private student loans.
There are several federal loan programs available to both students and parents, including:
- Perkins Loans for exceptionally low-income students
- Stafford Loans, Subsidized and Unsubsidized, for Undergraduate and Graduate Students
- PLUS Loans for Graduate Students
- PLUS Loans for Parents
- Consolidation Loans
Federal student loan programs differ from one another primarily in their eligibility requirements, loan amounts, interest rates, lender, and the length of time you’re given to repay the loans. In one federal program, your loan money may come from and be repaid to the Department of Education; in another program, the loan money may come from and be repaid to a bank but have a better interest rate and loan terms than a private loan would. In yet another federal program, your loan money may come from and be repaid to your school. Regardless of loan program, you’ll get the actual money through your school’s financial aid office.
After you graduate, a federal consolidation loan will allow you to combine multiple student loans into a single loan with one monthly payment.