Types of Student Loans

If debt in your life is unavoidable, student loans are among the best debts to have. Although it can be scary to start your adult life with debt, financing a good education should be seen as an investment. Having a college degree can help you start with a better and higher paying job than you would have otherwise.

And for many people, a college education is impossible to obtain without borrowing money to pay for it.

Student loans come in many shapes and sizes, and the regulations for them can be different as well. There are several types of education loans for which you may be eligible.

Stafford and Perkins Loans are federal loans given directly to the student. This type of loan, which is funded with government money, comes with low interest rates and favorable repayment options. It also requires no credit check or collateral. They can be consolidated upon graduation .

PLUS loans. originally called Parent Loans for Undergraduate Students, were created so parents could help fund their children s educations. Now, parents may take out Parent PLUS loans and graduate students may use Grad PLUS loans.

Some students may also be eligible for private loans or health professional loans. depending on their credit standing and area of study, respectively.

Stafford Loans

Stafford Loans are more common than Perkins Loans, the other type of federal student loans. Money for these loans comes directly from the federal government in a program called the Federal Direct Student Loan Program (FDSLP).

There are two types of Stafford Loans: subsidized and unsubsidized. The type helps determine your interest rate and maximum loan amount.

Subsidized Stafford Loans

If your loan is subsidized, you won t be responsible for making any payments until after you graduate. Your interest rate typically should be at or below 6.8 percent. The government pays your interest for you while you re in school.

Subsidized loans are reserved for students who can demonstrate a financial hardship. Most go to students whose families annual incomes are below $50,000.

If you re an undergraduate, the maximum annual amount of a subsidized loan depends on your year in school. You cannot accrue more than $23,000 in subsidized Stafford Loans throughout your undergraduate studies.

If you re a graduate student or medical student, your yearly loan amount is capped at $8,500. Graduate students and medical students can t borrow more than $65,500 in total, including their undergraduate subsidized loans.

Unsubsidized Stafford Loans

If you have an unsubsidized loan, you re responsible for paying off all the interest. Interest builds up at a fixed rate of 4.66 percent while you re in school, but payments are typically deferred — or postponed — until after you graduate. All students are eligible for this type of loan.

Your annual Stafford Loan limit ranges from $5,500 to $12,500. You are eligible for a larger loan if you are later in your education or if you re financially independent. If you re financially dependent but your parents are ineligible for Parent PLUS loans, you re permitted the same maximum loans as if you were independent.

These loan caps are for both subsidized and unsubsidized loans combined.  This means that if you re given a large subsidized loan, you are only eligible for a smaller unsubsidized loan. Likewise, if you have a small subsidized Stafford Loan or none at all, your unsubsidized loan can be larger.

If you re a graduate student, you have a higher annual limit of $20,500. In total, your undergraduate and graduate Stafford Loans cannot exceed $138,500.

Or if you re a medical student, you have the highest limits. You may borrow up to $40,500 annually and $224,000 in total.

• To apply for a Stafford loan, complete the Free Application for Federal Student Aid (FAFSA).

Perkins Loans

Perkins Loans are more desirable than Stafford Loans and have more stringent eligibility rules.

Perkins Loans have a fixed interest rate of 5 percent. They are all subsidized, so the government pays any interest accrued while you re in school and for a short period after you graduate.

Because of their favorable terms, Perkins Loans are reserved for students who show exceptional financial need.

These loans are funded by the government but disbursed by each individual college or university. The federal government distributes a limited amount of funds to each school, and the school determines which students to lend to.

As with Stafford Loans, students can only borrow a certain amount through Perkins Loans.

Eligible undergraduates may borrow up to $5,500 in Perkins Loans annually, for a total of $27,500.

Graduates students may borrow up to $8,000 annually. The total cap is $60,000 and is based on both undergraduate and graduate Perkins Loans.

PLUS Loans

PLUS loans are available for both parents and graduate students. Parent PLUS loans are for parents of dependent undergraduate students, and Grad PLUS loans are for graduate students themselves.

As with other education loans, PLUS loans are funded directly by the federal government. But unlike traditional student loans, they have no maximum amounts and can be used to cover any education costs not covered by other financial aid. They have a fixed interest rate of 7.21 percent.

Private Education Loans

Private education loans, also called alternative education loans, are an option for students and parents when other sources of financial aid do not fully cover the cost of school.

As the name suggests, these loans are provided by private lenders and do not use government funding. Because of this, private education loans more closely resemble personal loans than student and parent loans.

Your eligibility and interest rate depend on your credit history. Your interest rate is typically higher than with federally guaranteed education loans but lower than with other debts like credit card debt.

Specific borrowing terms vary by lender.

Health Professions Student Loans

Specialized student loans exist for students studying specific areas of medicine such as nursing, sports medicine or veterinary medicine. Each loan has its own requirements about accepted areas of study and financial need.

• Learn more about medical education loans from the Health Resources and Services Administration (HRSA), a part of the U.S. Department of Health and Human Services.

Despite your financial standing or field of study, you can find an education loan that suits your needs. It can help you and your family to fund your higher education and reduce the financial burden of school.