College Loans
The federal student loans you’ll be eligible for will be determined through the results of your Free Application for Federal Student Aid, or FAFSA. Federal loans include subsidized and unsubsidized federal student loans, and students who find they are eligible for the loans should take advantage of them before investigating private student loans. Most federal loans are lower in interest than those that are private, and the repayment conditions tend to be more flexible.
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Stafford Loans are among the most popular college loans. Available to both undergraduate and graduate or professional school students, Federal Stafford Student Loans are a good, low-interest option for those who need supplementary college funding. Schools that participate in the William D. Ford Federal Direct Loan (Direct Loan) Program offer Stafford Loans. Subsidized Stafford Loans are awarded on the basis of financial need; unsubsidized Stafford Loans are not related to income, but your estimated cost of attendance and financial aid you’ve already been awarded.
The amount you may borrow depends on your year in school and whether you have a subsidized or unsubsidized Direct Stafford Loan. A subsidized loan is awarded on the basis of financial need. During the current school year, dependent undergraduate students may borrow between $5,500 and $7,500 per year combined in unsubsidized and subsidized loans. If you’re an independent undergraduate student, you may borrow between $9,500 and $12,500. Graduate and professional school students may borrow up to $20,500 annually, with no more than $8,500 of that composed of subsidized loans.
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Federal Perkins Loans are low-interest loans for both undergraduate and graduate students with high financial need. The Federal Perkins Loan program is administered by individual colleges and universities who contribute a share to the program alongside funding from the federal government. Your school will be the lender of your low-interest loan. To be eligible for the Perkins Loan, students must demonstrate sufficient financial need.
Depending on when you apply, your level of need, and the school’s funding level, you can borrow up to $5,500 for each year of undergraduate study and up to $8,000 for each year of graduate or professional study. An additional "perk” with this loan is the nine-month post-graduation grace period (as opposed to the more common six months) during which students can concentrate on finding work rather than on paying back loans. Students entering certain fields of study may also be eligible for having their Perkins Loans canceled. This provision most often applies to students pursuing fields in high-needs fields like teaching, nursing or law enforcement, or volunteering their services in programs like the Peace Corps.
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Federal Parent Loan for Undergraduate Students Loans, or PLUS Loans, are available to graduate school students and parents of dependent undergraduate students as a means of funding their education. As with Federal Stafford Loans, these loans are available through the William D. Ford Federal Direct Loan (Direct Loan) Program. Your parents can get either of those PLUS Loans, but not both, for you during the same enrollment period. For both version of the loan, your parents must be able to pass a credit check, although they may still be able to receive a loan if someone with a better credit record agrees to endorse the loan. PLUS Loans for graduate students also require that the applicant have a decent credit history, and that the student borrower has already applied for their annual loan maximum eligibility under the Federal Subsidized and Unsubsidized Stafford Loan Program.
PLUS college loans are costlier than Stafford or Perkins college loans, but the maximum borrowing amount is oftentimes higher. A parent or graduate school student may borrow up to the total estimated Cost of Attendance (COA) at a school minus any other aid received. If the cost of attendance is $6,000, for example, and a student receives $4,000 in aid, only $2,000 may be borrowed. The cost of attendance may include tuition and fees, room and board, books and supplies, transportation, and miscellaneous educational expenses. The student's school will determine and certify this amount. For both parents and students, interest begins to accumulate after the first disbursement is made.
Private student loans are also called alternative loans, as they are your alternative to federal student loans. While federal loans will probably offer you more repayment flexibility and lower interest rates, students and parents who have not received sufficient money in the form of federal loans may need to look elsewhere. Due to the number of private lenders and the various details involved (interest rates, fees, discounts etc.), selecting the best-suited lender can be difficult. Students who need to use private loans to pay for some of their schooling should contact their college financial aid office for a list of highly-ranked lenders.
Private loan rates rise and fall with the economy and vary from lender to lender. Each student lender sets their own interest rate and chooses what kind of borrower benefits their customers will receive. The amount of money a student may borrow in private loans is usually greater than the amount that may be borrowed in federal loans, and the chosen lender will be able to tell the student how much money they can borrow. For many private loans, the borrowing limit will be the student’s cost of attendance minus their other financial aid, which is comparable to standards of many popular federal student loans. Private lenders, however, often require that students begin making payments once the initial disbursement has been issued.
The main source of private loans for students looking to supplement their financial aid packages are banks, but be aware that fluctuations in the banking industry could affect private loan sources. Credit unions, which also offer student loans, are also vulnerable to market woes. Be sure to investigate your private student loan options closely to make sure you’re getting the best rate possible and that you’re not missing any fine print.
Consolidation loans can greatly simplify your student loan repayment process, as the purpose is to turn several payments into one. Often, interest rates on the consolidated loans are lower than what you would have been paying, although you won’t be able to consolidate your private and federal student college loans into one. Federal loans may be consolidated during periods of repayment, grace, deferment, and forbearance, and college loans may not be consolidated while the borrower is still in school. The consolidation rate is fixed for the life of the loan, which protects the borrower from future increases in variable rate loans but prevents them from benefiting from future decreases in variable rates. There are no application fees or prepayment penalties, but be sure nonetheless to investigate your options carefully, as if you consolidate your college loans, you may lose out on some borrower benefits.