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What is a student loan? - Growella

Easy-To-Read Explanations: What Is A Student Loan?

By Dan Green

Student loans are loans which pay for the tuition, book and supplies, and living expenses of a student in college, trade school or graduate school. Student loans are made by the United States government, and by banks and private lenders. Loans can be made to students, or parents or guardians of students.

How Do Student Loans Work?

Student loans are loans specifically used to pay for the tuition and expenses of college, trade school, or graduate school.

Loan sizes vary from a few thousand dollars to over one hundred thousand dollars, depending on where you choose to study and how much you choose to borrow.

For many people, student loans make education after earning a high school diploma or General Educational Development (GED) certificate possible.

More than half of all college, trade school , and graduate school students use student loans to help pay for their further education.

Student loans work like this:

  1. You apply for a student loan online
  2. Your student loan gets approved
  3. Money from your loan gets paid out at the start of each school term
  4. When your studies are complete, you begin paying back your loan

You can borrow as much money as you want when you’re applying for a student loan, up to the total cost of your tuition , room and board, and books and supplies.

Student loans are available to all students, regardless of their household income. Your parents cannot be “too rich” for you to get a student loan; and, it doesn’t matter whether you actually need one.

You don’t have to show financial need in order to get a student loan.

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The Types Of Student Loans You Can Get

For students applying to college, trade school, or graduate school, there is a long list of available student loans programs.

The most common student loan programs are:

  1. The Direct Subsidized Loan
  2. The Direct Unsubsidized Loan
  3. The Direct PLUS Loan
  4. The Federal Perkins Loan
  5. Private Student Loan

Direct Subsidized Loans and Direct Unsubsidized Loans are sometimes known as Federal Stafford Loans because they’re sub-groups of the Stafford Loan program.

How Do You Get A Student Loan?

The steps for getting a student loan are straight-forward and simple: set aside 30 minutes, go to the government’s official student loan website, and complete the government’s online student loan application.

That’s all.

After applying, the government will share your student loan application with whichever schools you request. Then, in a few days time, you’ll hear back about your loan.

There are only a few basic requirements in order to get approved for a government-backed student loan:

  1. You must have a high school diploma or equivalent
  2. You must be accepted to, or currently enrolled in, an approved school
  3. You must have a valid social security number
  4. You must agree to abide by the terms of your student loan
  5. You must have no prior history of defaulting on a student loan

You must also be a U.S. citizen, or have the appropriate documentation which allows you to live and study in the United States; and, male applicants under the age of 25 must accept registration with the Selective Service .

If you meet the above requirements, you’re likely eligible for a student loan. It doesn’t matter whether you have money in the bank; or, whether you’ve decided on a major or course of study.

It doesn’t even matter what grades you got in high school. Everyone can apply for a student loan. Everyone.

More than $150 billion is loaned to students each year.

Apply for your student loan today.

Student Loan Frequently Asked Questions

Student loans work like other loans. You borrow money for something; and, as interest builds up, the loan is paid back in installments.

Here are answers to some of the most frequently asked questions about student loans.

What is a Stafford Loan?

Stafford loans are the most common student loan type. They’re also known as Direct Loans .

Stafford loans are made by the United States government, via the U.S. Department of Education.

Stafford loans come in two varieties: subsidized and unsubsidized .

he difference between subsidized loans and unsubsidized loans is that the government pays the interest on a subsidized loan while the student is still in school, which means that no payments are due while the student is enrolled.

The government does not pay the interest on an unsubsidized loan, which means that interest payments are due even while the student is in school.

What is a Direct Subsidized Loan?

Direct subsidized loans are a type of Stafford Loan. In the direct subsidized loan program, students borrow money and pay zero interest while they’re in school at least part-time; and, for the first six months after graduation.

Direct subsidized loans are available to college students only.

What is a Direct Unsubsidized Loan?

Direct unsubsidized loans are a type of Stafford Loan. In the direct unsubsidized loan program, students borrow money and begin paying interest as soon as money is loaned.

Income is not evaluated when applying for a direct unsubsidized loan.

Direct unsubsidized loans are available to students in college, trade school, and graduate school .

What is a Direct PLUS Loan?

Direct PLUS loans are student loans to pay for whatever educational costs remain after your other student loans are accounted for. They can be used by parents or by students.

Parents applying for the Direct PLUS loan program must have a child attending college at least part-time; and, students applying for a Direct PLUS loan must be attending graduate school or trade school at least part-time.

Direct PLUS loans are typically not repaid until the student has graduated and six months have passed.

What is a Federal Perkins Loan?

Federal Perkins loans are student loans with below-market interest rates and relaxed terms for payback. They’re more commonly referred to as Perkins Loans.

Perkins Loans are available to students in college, trade school, and graduate school who demonstrate financial need and are enrolled at least part-time.

Students with Perkins Loans do not begin paying back on their loans until 9 months after graduation. The U.S. government pays your loan’s interest and costs while you’re studying in school, and for nine months after you graduate.

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Who can get a student loan from the U.S. government?

Student loans from the U.S. government are available to people meeting the following criteria:

In addition, student loan applicants must promise to repay their loans; and men under the age of 25 must agree to register with the Selective Service.

There is no income restriction on government-backed student loans. No matter how much money you, or your family, has in the bank, you can get approved for a federal student loan.

Who can get a private student loan?

Private student loans are available to every student in college, trade school, or graduate school.

What is the difference between federal student loans and private student loans?

There are several differences between a federal student loan and a private student loan.

The first difference is that federal student loans are made by the U.S. Department of Education and private student loans are typically made by banks and credit union.

A second difference is that many federal student loans defer payments on students while the student is still active in school; and for at least six months after graduation. Payment on private student loans begin immediately.

A third difference is that federal student loans make allowances for job loss and illness; giving you the ability to postpone, delay, or lower your payments. Private student loans may not offer such accommodations.

There are other key differences between federal student loans and private student loans as well, including differences in interest rates and tax-deductibility.

In general, it’s recommended that students exhaust the federal student loan options before pursuing private ones.

What are the reasons I would want a private student loan?

There are many reasons why a student would want to use a private student loan to help pay for college, trade school, or graduate school.

The first reason is that your financial aid package came in less than you expected, and you don’t have enough cash in order to pay for school.

A second reason is that interest rates are sometimes lower with private student loans as compared to Direct Subsidized Loans or Direct Unsubsidized Loans. This is especially true for students and households with high credit scores and good income.

A third reason to use private student loans is private student loans are typically in the student’s name and not in the name of the parent. This can be helpful for parents who don’t want additional debt on their credit reports; and, for students who wish to establish a credit history.

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What is a variable interest rate student loan?

A variable interest rate student loan is a student loan for which the interest rate can change over time.

In general, the rate change on a variable interest rate student loan occurs just once per year and is based on a formula. The formula typically includes limits about how much the interest rate can change at one time.

It’s usually two percentage points per year, at most.

Because there’s a limit to how much your variable interest rate student loan can change each year, variable interest rate loans keep your rates from skyrocketing from one year to the next.

What is a fixed interest rate student loan?

A fixed interest rate student loan is a student loan for which the interest rate never changes over time. The rate on the first day of the student loan is the same as the rate on its last day, too.

Once I’m approved for my student loan, how do I get the money?

Once you’re approved for a student loan, your monies will be sent to your college, trade school, or graduate school directly. The money from your loan will not be sent to you.

How do I apply for a student loan?

You can apply for federal student loans including Direct Subsidized Loans, Direct Unsubsidized Loans, Federal Perkins Loans, and Federal PLUS loans at the government’s sponsored website.

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Is a student loan the same as a scholarship?

No, a student loan is not the same as a scholarship . A student loan must be repaid. Scholarships are grants , and do not get repaid.

Can I get a student loan if I don’t have a demonstrated financial need for one?

Yes, you can get a student loan without demonstrating financial need. No matter how much money you or your household earns each year, you can get approved for a student loan.

Click to see rates for private student loans.

My  parents earn a lot of money. Can I still get a student loan?

Yes, you can get approved for a student loan no matter how much money your parents each year; and no matter how much money your parents have in the bank.

Can I get a student loan if my grades weren’t good in high school?

Yes, you can get approved for a student loan no matter your grades in high school. So long as you have a high school diploma, a Graduation Equivalent Diploma (GED) , or a homeschooled high school education, you can get approved for a student loan.

If I have student loans, can I still work a job?

Yes, you can get approved for a student loan if you’re working a job, or paying your way through school.

If I get a student loan, how long do I have to finish college?

When you get a student loan, your eligibility is measured in academic years and limited to one-and-a-half times the length of your degree.

For example, if you are enrolled in a a 2-year Associate Degree program, you are given three years to complete your studies. Similarly, if you are enrolled in a 4-year Bachelor’s Degree program, you are given six years to complete your studies.

Can I pay back my student loans faster than my payment schedule says?

Yes, you can repay your student loans faster than your payment schedule says. The payment schedule you get for you loan is for minimum payments only. If you decide that you want to pay off your student loans early, you can send more money at any time.

How Much Student Aid You Can Get?

All students in college, trade school, and graduate school are eligible to apply for student loans — both federal and private.

Students applying for government-backed student loans should look at Direct Subsidized Loans and Perkins Loans first, because the terms for these loans can be favorable.

Students should also compare their federal loan terms against what’s available from banks and credit unions in the private student loan market.

Private student loans can be searched online easily. Find out for what you’re eligible.

Click to see how much you can borrow for school.

Written by Dan Green

Dan Green is a mortgage lending expert and the founder of Growella. Prior to Growella, Dan was a six-time, top-producing loan officer; and, ranked repeatedly among the top 1% of loan officers nationwide. Dan's home buying expertise has been in print and on TV with The Wall Street Journal, NPR, Forbes, CNBC, and others.

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