Types of college loans

Identify the type of loan that works best for you. Then, go to https://www.khanacademy.org/college-admissions for Khan Academy's complete college admissions and financial aid resource!

- [Interviewer] We're here
today with Sean Logan,

director of college counseling
at Phillips Academy.

Sean, one of the big
decisions that students face

is that of student
loans when they're going

through the college admissions process.

Can you kind of explain to me where are

the different places I can get loans

and then how that impacts
what those options are?

- [Sean] Sure, so the government is

probably the best source
of loans right now.

And, you know, there's
also smaller state loan

programs that are out there,
and that varies by states.

- [Interviewer] So that's sort
of the federal government,

then there's the state government.

- [Sean] Yep.

- [Interviewer] Okay.

- [Sean] There are colleges that will

do their own institutional loans

and then there are private
institutions that will do loans.

- [Interviewer] Okay, and of all these

different options, where should I begin?

- [Sean] So, with your
financial aid package,

colleges will help you
sort of understand this,

but in general, colleges
are gonna use a lot

of federal money at
first and try to package

you that way, and again,
it's generally the best

type of loan you can get.

There are need-based
loans that are out there

so you have to have certain
levels of income to qualify.

The first being that
the Federal Perkins loan

generally for more lower income students.

That has a lot of really
positive perks to it.

They include things like a fixed rate.

It has no origination fee.

You have the flexibility
with the government

paying all of the
interest until six months

after you graduate, so that's
a great factor for that.

- [Interviewer] Okay, so you're not gonna

pay any interest while you're in school.

- [Sean] While you're in school,

and you do have, again,
some flexibile terms

with deferring that if
you go to graduate school.

And again, you can take out in your

first year up to 5,500 dollars, uh,

you can take out up to 5,500
dollars as an undergraduate

for the Federal Perkins loans.

- [Interviewer] Okay,
and that's up to 5,500?

And is that per year or overall?

- [Sean] Uh, a year.

- [Interviewer] Okay, got it.

Are there any other
kind of need-based loans

that are available from
the federal government?

- [Sean] There are, so there's

also subsidized Stafford loans.

They're not quite as good terms

as the Perkins loans, but
again, still very good.

Probably the next best
loan you'll find out there.

There is an origination fee to that.

Right now, the interest rate is actually

a little bit lower than the Perkins loan,

but that will go up
depending on the markets.

Again, it has the same maximum

of 5,500 dollars per, for this
year, for your first year.

- [Interviewer] And is that
5,500, does it stay 5,500

every year or does that change?

- [Sean] So that can go
up as you're a sophomore,

junior, or senior, that amount can go up.

So you have a little bit
more flexibility with that.

And the subsidized Stafford, also,

their interest rate is also paid for

by the government until six
months after you graduate.

- [Interviewer] I see, so that's also

no interest paid while in school.

- [Sean] Correct.

- [Interviewer] Are there any loans that

the federal government offers
that aren't need-based?

- [Sean] There are.

Now, one thing to remember is you still,

you need to fill out a
FAFSA form to qualify

for any federal loans,
so even if you, go ahead.

- [Interviewer] Just so I understand,

so it's even if I don't
have financial need,

my family makes a lot of money,

I still fill out the FAFSA just

to get access to federal loans.

- [Sean] Correct, and that's an important

fact that people don't realize.

So there is an unsubsidized Stafford loan

and again, it's not quite as good of terms

as the other two we've talked about,

but it's still a very good
option for many families.

- [Interviewer] Okay,
so I know that the rates

for the Stafford subsidized
and unsubsidized are the same

so what are the actual
differences between the two loans?

- [Sean] So the biggest
difference is is that

the federal government
will not pay the interest

while you're in school.

- [Interviewer] Okay, so
they're not gonna cover you.

- [Sean] Right.

- [Interviewer] Okay, and then,
are there any other kinds,

you mentioned there was one other kind

of federal loan that's not need-based.

- [Sean] There also is something
called a direct plus loans

which a parent can take
out instead of the student.

It's in the federal program, so it still

has some of the benefits of that program

but it's a higher rate, but again,

it still has a lot of the other benefits

of the federal program and it's

backed by the federal government.

- [Interviewer] Great,
okay, great, so that makes,

those are for the
federal government loans.

What about sort of state
or college sources.

What are those loans all about?

- [Sean] So again, that
really is gonna depend

on the state and it's really
gonna depend on the college.

So, those could be very good options.

Personally, when I was in college I had

some of my loans were college loans

and those loans were actually,
had no interest rate at all.

So I was basically allowed to borrow,

again, in that example we used before,

I borrowed 5,000 dollars but
there was no interest at all.

All I paid back over the life of the loan

was the 5,000 dollars, so college loans

can be a really good opportunity,

but again, not all colleges offer them

and some of them don't
have as good of terms

as say the federal government does.

- [Interviewer] Okay,
so that's really sort of

state by state, college by college.

There's not sort of a
general rule of thumb,

it's just worth looking into.

- [Sean] But it's worth looking into.

The colleges will, if
you qualify for them,

they'll give you those options.

At the state level, it's
also worth looking into.

The colleges will
generally be able to sort

of let you know if you
qualify for these loans

and you can decide how good they are for

your family and your situation.

- [Interviewer] Great,
and then you mentioned

federal, state, college, and

you also mentioned private loans.

Where do those kind of
fall into this equation?

- [Sean] So, I think in
terms of the best terms,

the most flexibility,
they're probably at the,

you know, they would be my last option.

Now, they could be very
good options for a family

that still need money, but I would say

if you've exhausted those other options,

this is, that's probably
the next place to go.

You know, they aren't subsidized.

They are not need-based.

And they definitely require,
most of them will require

a parent to commit to repay

the loan if the student fails to.

The interest rates will vary
by the different institutions.

So, banks, other financial institutions

typically have the highest interest rates

and the least flexible payment options.

- [Interviewer] So then,
why wouldn't, as a student,

why wouldn't I just
take all Stafford loans

or Stafford subsidized, or you know,

if I didn't qualify,
Stafford unsubsidized.

Why would I even bother looking

at something like a private loan.

- [Sean] Well, unfortunately,
with a Stafford loan,

right now, in the first
year the most you can

take out is 5,500 dollars and you may need

a little bit more than that for loans.

So, you may need to look at other options

and so that's why you would move down.

With a Perkins loan, you may not qualify

because you don't meet
the income standards

and for the subsidized Stafford loan,

you may not qualify for that.

So, again, you may, you would definitely

qualify for the unsubsidized loan,

but then if you need a bit more

you may have to go to
these other alternatives.

- [Interviewer] I see,
so if you kind of pass

that yearly maximum on the Stafford loans,

you don't qualify income-wise for Perkins,

then it'll be down to either a plus loan,

which has a fairly high interest rate,

state or college loan,
which kind of varies,

or the private loans, and
those can have variable

interest rates and maybe
not as good repayment terms.

- [Sean] Right.

- [Interviewer] But it sounds
like first and foremost,

if you can get access
to Stafford or Perkins,

that's the place to start?

- [Sean] Yes, absolutely.

- [Interviewer] Great, thank you so much.