Beginners' Guide to Low Interest Student Loans

Low interest student loans are loans typically guaranteed by the government to help you pay your tuition while you go to school and deferring repayment until after you graduate. Interest rates vary from 3 to 8 percent, depending on the lender, the amount and type of the loan, and other factors. To be considered for low interest student loans, you must complete the Free Application for Federal Student Aid (FAFSA), which can be completed online and automatically reports to the schools you select.

Types of Low Interest Student Loans

There are two main types of low interest student loans; most students need both to pay their full tuition, depending on the cost of their school:

  • Subsidized Loans - Subsidized low interest student loans have a lower interest rate than unsubsidized loans. The Federal government subsidizes, or pays the interest on your subsidized student loans while you are in school and for six months after you graduate.

  • Unsubsidized Student Loans - These loans are also guaranteed by the government, but the government does not pay the interest while you are in school. The interest accrues and is added to the balance of the loan unless you choose to pay the interest while you attend school.
PLUS Loans

Parents of students attending high-priced schools who are not receiving enough loans, grants, and scholarships on their own may be eligible for a PLUS loan.

  • PLUS loans are low interest student loans to parents that help pay the cost of dependent student tuition.

PLUS loans are available at low interest rates, but not as low as subsidized and unsubsidized student loans.
  • Repayment of PLUS low interest student loans begins when your dependent student graduates, or sooner if he or she discontinues attending school or drops below half time.

Student Loan Pitfalls

Student loans, even low interest student loans, can be difficult to manage. It's relatively easy to get the loan, and the debt adds up without notice. Repayment can often be difficult and cost as much as a new car payment. You can minimize repayment difficulties by adhering to the following recommendations.

  • While it is tempting to have extra cash, avoid taking more loan money than you actually need. Try working part-time or obtaining work-study to offset the cost of tuition.

Pay the interest on unsubsidized loans each quarter. This will prevent the interest from accruing on your balance and adding to your debt load.
  • Earn a passing grade point average and at least six credits to maintain your eligibility for low interest student loans.

Repaying Your Loans

When you finish school, you will have a six month grace period before you will be required to repay your low interest student loans. During that time, you should attempt to consolidate the loans at the lowest possible rate. There are many repayment plans available depending on your income. If you decide to go to graduate school, your low interest student loans can remain in deferment as long as you are taking at least six grad credits each semester.

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