Last updated on September 21, 2023
Student loans are a great way to help finance your education. They can be used for various purposes, including paying tuition and fees, books, supplies and equipment, and housing. There are several types of student loans available to students in Canada.
In addition to providing funding for your education in Canada, these loans will also help you repay the cost of your studies upon graduation or completion of your program. To qualify for these loans, you must meet specific requirements.
There are several types of student loans available to students and their families:
Federal Student Loans
Federal student loans offered by the U.S. Department of Education include three main types:
Direct Subsidized Loans: These loans are are offered to undergraduate learners with demonstrated financial need. The government pays the interest on these loans while the borrower is in school, during the grace period, and deferment.
Direct Unsubsidized Loans: Both undergraduate and graduate students can access these loans. Unlike subsidized loans, the interest accumulates on unsubsidized loans while the borrower is in school and during other periods. The borrower is responsible for paying the interest.
Direct PLUS Loans: The graduate or professional students and parents of dependent undergraduate students can apply for this type of loan. PLUS, loans need a credit check and feature higher interest rates in comparison to subsidized and unsubsidized loans. Interest begins accruing immediately, and borrowers are responsible for paying all interest that accumulates.
These federal student loans provide various repayment plans and options for loan forgiveness or discharge based on factors such as income, employment, and public service.
Private student loans
Private student loans are educational loans provided by private financial institutions like credit unions, banks plus online lenders. Unlike federal student loans, which are funded and guaranteed by the government, private student loans are not backed by the government.
Private student loans cover educational expenses such as tuition, books, housing, and other related costs. These loans are typically utilized when federal loans, scholarships, grants, and personal funds do not fully cover the cost of education.
Parent PLUS Loans
Parent PLUS loans are student loans for parents to help pay for their children’s college education. They are available to parents who have not earned enough income to be eligible for other federal student loans and do not qualify for parent PLUS loans from another source.
Parents can borrow up to the cost of attendance at an eligible school minus any other aid they get, such as grants or scholarships. Parents may also receive benefits from their employer or a voluntary retirement program if they have one. Depending on their income level and other factors, parents may have to repay this loan after their child finishes college.
Perkins Loans
Perkins Loans are federal student loans available to undergraduate and graduate students. The federal government subsidizes the interest rate on Perkins Loans, which means that the interest rate for Perkins Loans is lower than the interest rate for other types of student loans.
Stafford Loans
Stafford Loans are federal student loans available to undergraduate and graduate students. The interest rate on Stafford Loans is subsidized by the federal government, meaning that the interest rate for Stafford Loans is lower than that for other types of student loans.
State-Sponsored Loans
State-sponsored loans are federal student loans guaranteed by the government and made directly to students or parents. These are the most common types of student loans because they’re available to anyone who needs money for college. The good thing about state-sponsored loans is access to federal financial aid. Other benefits include lower interest rates than private lenders, allowing you to avoid private loan fees and maximize the financial aid you receive.
Institutional Loans
Institutional loans are the most common type of student loan. They’re available from either banks or government-sponsored lenders and can be used to pay for tuition, books, housing, and other expenses.
Institutional loans are not government-backed, so they’re less likely to be affected by changes in federal student lending. And because they’re backed by the institution that issued them, they don’t have to abide by federal regulations that make other student loans more expensive for borrowers.
Direct consolidation
Direct consolidation is the process of combining two or more student loans into one single loan. Depending on how you want to consolidate your loans, this can be done by the borrower or the lender. Direct consolidation can benefit borrowers with multiple student loans who want to consolidate them into one low-interest rate loan. It can also benefit borrowers who wish to avoid paying private lenders interest on their student loan payments.
To apply for direct consolidation, you must have at least one active federal direct loan in repayment. You will also need to have missed a minimum number of payments before you can consolidate your loans.
Why are Student Loans Important?
Flexible repayment options
Student loans are also flexible in how they are repaid. You can choose between different student loan repayment plans, including fixed payments or income-driven repayment plans that vary according to your income level and family size. You may even qualify for a reduced interest rate on your student loans if you choose one of the income-driven repayment plans during the first three years of repayment following graduation or certification from an institution of higher learning.
Easy application process
The application process for student loans is straightforward. You must submit your personal details, academic history, and other relevant information about yourself. The lender will then check your credit score, and if it meets the standards of their bank, you will be approved for a loan.
Tax benefits
Student loans can help reduce your tax burden. These loans are considered income by the IRS; therefore, you may be able to deduct certain expenses, such as interest payments, from your taxes.
Better credit score
If you obtain a student loan for college, you’ll likely have an excellent credit score after graduation. This will help you get a better interest rate on any future loans and lower your monthly payment amount if you have more than one loan.
Key Takeaway
Student loans are a loan that helps you pay for your education. They’re different from other types of loans, such as credit cards and personal loans. Student loans come in two forms: federal student loans and private student loans. The government backs federal student loans with lower interest rates than private student loans.
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