Student loans are usually given at a low interest rate as it is strictly meant for education purpose. Students normally take the student loan for a particular time period and amount depending upon their specific requirement. They take only that much amount that they would be practically able to pay back. Student loans can also supplement scholarships, grants and personal savings.
There are broadly four types of student loans depending on their source:
1. Government Student Loans – Government student loans are issued by the Department of Education and are granted directly to the students. The students need to repay the loan with interest only after their studies get over. The government student loans usually give students a low interest rate. The amount of money a student can borrow is usually decided by the lender.
2. Parent Student Loans – Parent student loans are issued to the parents of dependent students. Here the parent is liable to make the repayments on completion of his/her child's study.
3. Private Student Loans – Private Student Loans are generally issued by private institutions like banks, lenders, etc. Like other student loans types, they finance the studies of the student by granting a loan, which is to be repaid on completion of the studies. Here rate of interest is found higher than the government student loans.
4. Other Loans - Other sources of student loans could be something like a home equity loan, which offers tax benefits.
The interest rate varies on the basis of secured or unsecured loans. For the secured loans interest rate is usually low and it is taken by a parent and family house is used as security. While in unsecured loans interest rate is slightly high.