Undergraduate Student Loans

By: EconomyWatch Content   Date: 25 November 2009

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Undergraduate student loans are meant for students who pursue their first educational degree. These loans should be used to pay the costs associated with an approved degree program. Typically, costs include tuition fees, room rent, transportation, books and other living expenses. Undergraduate student loans include Perkins loan, subsidized and unsubsidized Stafford loans. Private loans are also available for students with competitive interest rates. 

Undergraduate Student Loans: Federal Loans

Perkins Loans and Subsidized Stafford loans are meant for students who can exhibit financial need. Perkins loan is a subsidized loan that is only available for people who can exhibit great amount of need. With a Perkins loan, the government pays the interests for the loan while you are in school. Stafford loans are available for all students, but the subsidy is available only for students who prove their financial need. However, the loan, including interest, can be deferred until you graduate from college.

PLUS loans are unsubsidized undergraduate student loans that parents and legal guardians can apply. The applicant should posses good credit score to be eligible for this loan. Moreover, the funds should only be used to finance the student’s education. Usually, people opt for these loans to cover the costs associated with their undergraduate program which are not covered by other Federal loans. 

Undergraduate Student Loans: Private Loans

A Federal loan is the best option a student should aim for. However, some may not be able to get a Federal loan. In this circumstance, a student can opt for a private loan with competitive interest rates. Both the demand and supply of private loans are increasing rapidly as the government is not increasing the number of Federal loans in line with the rising demand. However, you should be very careful about the cost of undergraduate student loans and repayment terms. The right private loan will have the interest rate of Prime - 0.50% or LIBOR + 2.0%. A private loan with this sort of interest rates will be as good as a Federal PLUS loan. However, private loans with very low interest rates require the borrower to have a great credit score and a co-signer.


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