David’s Did You Know – Loan Types

Posted by on December 22, 2011

Did you know there are three main categories of loan types?

Many students get a lot of paperwork from their lender and get confused by the
different loans they have.  Do you know the difference between a
Subsidized Stafford Loan, an Unsubsidized Stafford Loan or an Alternative
(Private) Student Loan?

The Subsidized Stafford loan is a loan from the Federal Government.  The
benefit of this loan is that the government is paying the interest while you
are in school and during other deferment periods.  This doesn’t mean that
they are holding off charging the interest and just pile it onto the loan
later, they PAY the interest so when you leave school the amount you borrowed
originally on this loan is still the amount you owe.  When you leave
school they stop paying the interest and you are then responsible for the
principle and interest.

The Unsubsidized Stafford loan is a loan from the Federal Government as well; however, unlike the Subsidized Stafford Loan you are responsible to pay the interest while you are in school.  This means while in school you will likely receive letters
from your lender stating the amount of interest your loan has earned and the
option to pay it.  If you do not pay it by the day they set as a deadline, they will then add that interest to the original loan amount.  It is a good idea to pay your interest as you go so your loan remains smaller and you do not start paying interest on the interest the lender just added to your loan.

The Alternative (Private) Student Loan is a credit based loan that a student may acquire from a bank to help cover additional credits that grants and Stafford Loans do not cover.  These loans can have a fixed or variable rate and may require you to make payments while in school.

If you get any paperwork from your lender it is important that you read it so you know
what is expected from you.  If you have questions you should contact your lender right away.

Thank you for your Interest in Minnesota School of Business.