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Types of student loans
There are several types of loans available to students. The simplest
categorization is into federal student loans and private loans. Federally funded
loans are administered initially through the US Department of Education's
Federal Student Aid programs, and are usually the easiest to get student loan
consolidation services for. These federal programs disburse about $60 billion a
year in loans, work-study support and grants. Stafford loans are the most common
form of federal loans for students, but there are a variety of other federal
payment plans - among them military / ROTC plans to pay for college.
Private student loans are administered by standard lending institutions. Among
the most common are Citibank student loans and the Sallie Mae Signature student
loans. These lenders are basically providing unsecured (or in some cases secured)
loans to you as a student, and will most often charge higher interest rates than
their federal counterparts.
Private and federal loans, along with scholarships, can be combined to fund your
education. However, it's important that when it comes time to consolidate
student loans, you do not mix the two types together. You should always
consolidate your federal loans first, then separately consolidate private
student loan debt. The benefits of consolidating your federal loans include: a
lower interest rate (usually, but keep in mind that interest rates change every
July 1), increasing the time for loan repayment to 30 years which reduces your
monthly costs, and reducing the number of lending institutions you send checks
to every month. For a more complete discussion of this topic and consolidation
eligibility criteria, visit our page on how to consolidate student loans.
Medical student loans fall into a special class, and are discussed on our
medical school loans page.
Trends for student loans
Nearly 50% of recent college graduates took out student loans, with an average
borrowed around $10,000 (1). Until recently, student loan interest rates ran
between 6-8%. Recently, though, rates have fallen very low. As of fall 2003,
Stafford loan interest rates were in 3-4% range (2).
Students who currently have loans, either a single loan or multiple loans, have
a variety of options for reducing their payments and indebtedness. Because
interest rates have fallen, loans can be consolidated or in some cases
refinanced. When you're considering refinancing student loans or student loan
consolidation, you need to compare interest rates before you consolidate federal
student loans.
Effects of student debt
Like any debt, student loans can influence your credit and your future decisions.
Students who borrowed a substantial amount for college (more than $5000) are
less likely to pursue higher education (1). In addition, student loan debt that
exceed 8% of your income can be seen negatively when your credit gets assessed
for future loans (this is especially true if you have one or more defaulted
student loans
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