It’s overwhelming isn’t it? Not only are you choosing a college and a major, but you also have to figure out the best way to pay for your education.

To help you determine the best way to fund your future, let’s define some of the confusing terms associated with loans. The terms we will go over are interest, federal, subsidized and unsubsidized. Once we’ve gone over the terms, we will define the four main student loans available.

Interest – Basically this refers to the fee for borrowing a loan. It is added to the amount you will be borrowing, and a lower rate signifies that you will be paying less.

Federal loans –These are loans offered by the federal government. You apply for these loans by filling out the Free Application for Federal Student Aid (FAFSA), which will be used to determine which loans you are eligible for. The good news is you won’t have to agonize over loans you are not approved for.

Subsidized– Subsidized refers to the fact that the interest on the loan will be taken care of while you are in school. If it’s a subsidized federal loan, the government will be paying the interest, instead of it coming out of your pocket.

Unsubsidized– For unsubsidized loans, you are responsible for interest while you are in school. The loan itself may still be provided by the government, but it will not pay the interest.

Alright, now that you’ve expanded your loan vocabulary, here are your loan options.

  1. The Stafford Loan is a federal loan that is given out based on financial need, comes with a low interest rate and comes with a long-term payment plan. This loan is available in two forms: subsidized or unsubsidized.
  2. The Perkins Loan.  This federal subsidized loan has a lower interest rate than the Stafford loan, but is more difficult to receive approval for because it are based on extreme financial need.


Although these are funded by the government, individual schools determine who will receive these awards. Because there are limited funds available, only a small number of students receive these loans.

  1. The PLUS loan. This unsubsidized federal loan is for the parents of undergraduate students. It is based on factors such as credit history and the cost of tuition. There is no maximum amount on a PLUS loan, so it can be a valuable in making up for costs that other financial aid does not cover.

Repayment for these will begin either 60 to 90 days after the loan is disbursed (paid to the school) or after college graduation.

  1. The private Loan. Banks, private companies and individual lenders offer competitive loan packages that can be based on credit history, grades, need and other factors. Before entering into agreements with private lenders, it is important that you fully understand all of the borrowing terms.

The last bit of advice you need to know is that it is likely that you will take out a combination of loans, and if you don’t find the loan that suits your need immediately, keep looking. Communicate with the school you are considering attending, and utilize the Internet as a resource for finding the perfect loan for you.

Alanna Ritchie is a content writer for, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.

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