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Federal Student Loans: What to Know
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Alexander
Student Contributor
Posted October 22, 2019
College can be expensive. With tuition, housing, food, and books, each passing year can prove more financially straining, so that’s where student loans come in. Student loans turn the burden of paying for school into something more manageable, though many folks don’t know quite how they work. Knowing at least the basics of student loans, especially those issued by the federal government, can save you hundreds (if not thousands) of dollars in the long run.
Types of Loans
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When you fill out the FAFSA as an undergraduate, you’ll typically end up being offered a variety of different aid options. These differ in a few key ways and generally fall into three categories.
Direct Subsidized Loans
Offered to undergraduates who demonstrate financial need on the FAFSA, the government pays the interest, so long as you’re in school half-time or more and up to six months after you graduate.
Direct Unsubsidized Loans
Like the subsidized loan, unsubsidized loans are offered to undergraduate students, but are not based upon need. Unlike subsidized loans, these loans collect interest while you’re in school.
Direct Parent PLUS Loans
Offered to the parents of undergraduate students, Direct Parent PLUS Loans are often used to fill in the gaps not covered by the previous two loans. Requiring a good credit history, these loans can carry a higher interest rate and will continue to collect interest while you’re attending school.
What does this all mean?
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Since unsubsidized loans accrue interest while you’re in school, it may be advisable to direct any payments made while you’re in school to those first. If you’re considering a consolidation loan, which is a form of debt refinancing multiple loans into one, it will be important to consider your interest rate. If you’re consolidating and the interest rate is higher than the average interest rate of your federal loans, it may be better to avoid consolidating.

All-in-all, careful consideration is required. Many times, one type of loan isn’t going to cover all your expenses, so planning the best course for your financial aid is going to be crucial both now and in the future. Be sure to read the terms of any loan carefully and never be afraid to ask for help. Your school’s financial aid office is an excellent resource.
Source:
https://studentaid.ed.gov/sa/types/loans
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