Obtaining a degree from a college or from a university can assist you in having numerous career options and being paid a higher income. Unfortunately, the process to obtaining these types of degrees are both timely and costly. If you are like most, you will likely find that you will need to take out one or more student loans to cover the costs associated with your education. You should make it a priority to research your options. Always remember, only borrow that which you absolutely need, and have a solid plan for repayment in place. In this guide, you will learn all there is to know about student loans.

Student Loans

What are the Different Types of Student Loans Available Today?

In short, there are two general types of loans available for students – federal student loans and private student loans.

Federal loans do not require you to have a minimum credit score to obtain them and should be your first option before looking into private student loans.

Private student loans are available to those that need more funds for school than federal student loans provide. Additionally, the private loans are the option available for students that do not qualify for the federal loan options due to their current citizenship status.

What Types of Federal Student Loans Are There?

Out of all of the methods available for paying for college, federal student loans are considered to be the most popular option. These loans have a high level of flexibility – in terms of payment options – and are known for having the best/lowest interest rates. The loans are provided by the Direct Loan Program. The following outlines the loans that are available federally along with a brief description of each:

  1. Direct Subsidized Loans – These loans are available to undergraduate students who are deemed to have a financial need. While the student is within school, there is no interest that is accrued on the loan. Additionally, this holds true during the grace period of six months as well as any associated deferment period.
  2. Direct Unsubsidized Loans – These types of loans are readily available for undergraduate students, graduate students, and professional students. There is no need to display any type of financial need. These loans start accruing interest right away. This interest will continue while you are in school obtaining your education, after graduation, and even during the deferment or the forbearance periods.
  3. Direct PLUS Loans – These types of loans are dedicated to graduate students and professional students. They are also available to the parents of undergraduate students that are dependent upon them. The funds may be used to aid in paying for educational expenses. These have the highest origination fees and the highest interest rates.
  4. Parent PLUS Loans – These types of loans are taken out by the parents of a student. This means that the parents are legally responsible for repaying the balance and that the loan will appear on the credit report of each parent named on the loan.

What Types of Private Loans Are Currently Available?

There are numerous private loans currently available for students. The private lenders offer numerous terms of repayment, designated incentives, interest rates, and consolidation options. Private student loans may have fixed interest rates or variable interest rates. The following outlines the common private loans available and a general description of each:

  1. Undergraduate Loans – These types of loans typically have a lower loan limit but a higher interest rate. In most instances, they will require a cosigner who will agree to take full responsibility for repayment if the student defaults. The reason that these loans usually require a cosigner is because the undergraduate student has yet to develop a credit history. The good news is, in many instances, once the student graduates, the lenders may offer a discount on the remaining principal of the loan.
  2. Graduate Loans – These loans are offered to borrowers that are going to a specific school – such as medical school or law school. The loan limits are higher, the interest rates are lower, and the repayment terms are longer. Lenders may also offer those who sign up for these loans longer grace periods, deferment periods during schooling, and additional deferment while a student works to complete a residency.
  3. Parent Loans – These types of loans are available for parents to take out to pay for the education of their child. These loans require citizenship or special eligibility as a non-citizen, good credit, and the student being enrolled in a qualified educational facility at least half of the time as an undergraduate. Other requirements will be outlined by each private lender that specializes in student loans for parents.

Best Practices for Applying for Student Loans

If you want to take out a loan for your education, there are several best practices that will help you get started. Remember, it is always best to try your hand at obtaining a federal loan first. Then, move to trying to obtain a private loan – if it becomes necessary. The following outlines the tips that you should take:

  1. First, you should check to see if you are eligible to receive financial aid or federal aid. Simply review the eligibility requirements. If you meet these requirements, move on to step 2.
  2. Next, submit the FAFSA. If you are considered a dependent of your parents or your guardian, you must include their income on the FAFSA. If not, report your income on it. The amount of money that you qualify for will depend heavily upon your needs. If approved, you may receive grants from the federal government, work-study options, and/or student loans.
  3. Once you submit the FAFSA, you will receive a report that outlines what type of federal aid that you qualify for and how much. You will also find that you receive award letters from the schools that you have been accepted to start.
  4. Once you determine how much financial aid you have, you will be able to determine how much more aid you need to fulfill your financial responsibilities. It is now time to consider taking out additional private student loans to cover the remaining financial obligation.
  5. If you decide to take out a private loan, it is time to research the various options offered by private lenders. You should consider the interest rates of the loan, your credit history, the possibility of having a cosigner, and the repayment terms associated with each offer. If you have difficulty finding private lenders for student loans, you should make an appointment with the financial aid office at your school. They will be able to provide solid recommendations on the best private loan offers in or around your area.

What’s the Differences in Repayments Between Federal and Private Loans?

In short, the main difference between federal loans and private loans are the associated payment plans of each. If you get a federal loan, you are not required to make payments as long as you are enrolled in the school on a part time basis.

Private loans will require you to make payments right away and before you graduate.

These private offerings cannot be consolidated into the Direct Consolidation Loan option; however, it is possible to refinance these loans.

If you take out a private loan, consult with your lender on the refinancing options you have and any associated consolidation options.

If your loan is from a private lender and has variable interest rates, you should know that the interest rate that you pay will – eventually – increase.


What is Deferment and Forbearance?

Deferment and forbearance – in terms of a student loan – outline forms of temporary types of relief for the loan. It is – in short – a period of time where the lender that you have does not expect any payments towards the loan.

It must be understood that during these times on a loan, interest may still accrue. These typically kick in as a result of job loss and other types of financial setbacks.

You may have to apply to have the luxury of deferment and forbearance on your student loan. Simply contact the lender to find out more.

Contact Us

If you have an interest in a student loan, you have both federal options and private loan options. First, you should always check to see if you qualify for financial aid. Then, you should try to apply for financial loans immediately thereafter. Once you have all the approvals in place, you should determine if you need anymore money. If so, you should apply for one or more private loans.

If you are in need of a private loan, we here at Somerville Bank are capable of assisting you. We offer many types of loans for consumers and have the best interest rates – so that you get more bang for your buck. If you are interested in a loan, you should contact one of our loan specialists today. You may reach us by visiting or calling one of our many locations.