The College on the Cheap street team recently interviewed some college students and quizzed them on the basics of financial aid. The students we spoke to were all engaging, though not all of them were totally knowledgeable. Some students knew more than others and some questions were easier than others, but the responses we received were generally entertaining. Check out the video, see if you can answer the questions, and then read answers below.

1. Should you take out private or federal loans first?

The students did well on this question – everyone we asked answered it correctly. You should take out federal loans before dipping into private student loans. Federal loans have lower interest rates than those that you would get through a private lender, and are sometimes subsidized. Be sure to exhaust all of your federal aid possibilities before taking out a private student loan. If you do need to take out a private student loan, check out our loan comparison and application tool—but be sure to do your research first by browsing our vast collection of informational articles.

2. What’s the difference between a private student loan and a federal student loan?

While this may seem like a softball question, the students didn’t fare as well with this one as they did with the previous question. Here are the differences between the two types of student loans.

A private student loan:
• comes from a private lender
• has no affiliation with the government
• often has a variable and higher interest rate than a federal student loan
• has higher borrowing limits than Stafford Loans
• is taken out in the student’s name, or sometimes in a parent’s name
• usually requires a co-signer
• requires a credit check
• are supplementary to a financial aid package
• often allows students to defer payment until they graduate, but some private student loans do require payments while the student is in school

A federal student loan:
• as of July 1, 2010, comes through the Direct Loan program (Department of Education)
▪ comes in different types, including: Stafford Loans (subsidized and unsubsidized), Perkins Loans, Parent PLUS loans, and GradPLUS loans – see the differences here
• generally has a lower (and fixed) interest rate than a private student loan
• generally has a lower borrowing limit than a private student loan
• can be included in a financial aid package

Federal student loans are much more desirable than private student loans as a primary source of money for college, but private loans are very useful for covering the financial gap between aid received and the cost of attendance.

3. What is the difference between a subsidized and an unsubsidized loan?

The students struggled with this question, though they did well trying to think on their feet. Here’s an outline of the differences between these two types of loans.

Subsidized loan:

• no interest accrues while the student is enrolled
• Federal Stafford Loan is the most common type of subsidized loan
• Subsidized Stafford Loans have lower interest rates, and the interest is paid off by the government while the student is enrolled in college
▪ in order to receive a subsidized Stafford Loan, the student and their family must demonstrate financial need

Unsubsidized loan:
• interest accrues while the student is enrolled
• higher interest rate than subsidized loans
• not need-based

4. Is a Stafford Loan private or federal?

We got a mixed bag of responses, though a good amount of students answered correctly. As you hopefully now know, a Stafford Loan is federal, and is disbursed through the Direct Loan program. There are two types of Stafford Loans: subsidized and unsubsidized. The differences between these two types of loans are outlined above and explained a bit more in depth in this article as well.

Not a bad showing for our first video, and there will definitely be more to come. Check back in for another installment of College on the Cheap later this week. Cheers!