College Loans
As the cost of a college education continues to increase, a rising number of students
are looking to financial aidin the form of college
loans to pay for school. Though they are not the optimal sources of funding - students
should search for college
scholarships and grants before borrowing - college loans may be necessary.
Those who choose to pay for schoolwith the help
of college loans should have a thorough understanding of their options before committing
to a certain lender. Below is a guide to various types of college loans, both federal
and private, that can help students sort through their options.
Federal College Loans
Students who are eligible for federal loans should take advantage of them before
moving on to others. Most federal loans are lower in interest than those that are
private, and the repayment conditions tend to be more flexible. The following federal
loan options are available to students in need.
- Stafford College Loans
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.
As of July 1, 2006, the interest rates on Stafford college loans are fixed for the
life of a loan. The fixed interest is 6.0% for subsidized Stafford loans and 6.8%
for unsubsidized Stafford loans as of July 1, 2008. While this rate changes for
new loans every year, loans previously disbursed will keep the same interest rate.
Loans disbursed between July 1, 1998 and July 1, 2006 have a variable interest rate,
which is reset every year.
The amount a student may borrow through the Stafford college loan program is limited,
and it is dependent upon a student’s year in school and on their status (full or
part time). During the 2008-2009 school year, dependent undergraduate students may
borrow between $5,500 and $7,500 per year combined in unsubsidized and subsidized
loans (more if they are independent). Graduate and professional school students
may borrow up to $20,500 annually.
- Perkins College Loans
Perkins Loans are even more affordable than Stafford college loans, but they are
not available to all students. The Federal Perkins
Loan program is administered by individual colleges and universities, and
the federal government provides funding for the program. To be eligible for the
Perkins college loan, students must demonstrate sufficient financial need. Individuals
who have submitted a FAFSA will receive a letter from their college financial aid
office outlining their eligibility for the Perkins, Stafford and PLUS college loans.
Undergraduate and graduate school students who are eligible for Perkins College
Loans can borrow up to the maximum allotted sum at a 5 percent fixed interest rate.
The loan limit will vary based on when students applied for aid, the extent of their
financial need and on the availability of funds at each college. Assuming a student
is eligible for the full amount, no more than $4,000 may be borrowed in Perkins
college loans annually by undergraduate students and no more than $6,000 may be
borrowed annually by graduate and professional school students. An additional "perk”
is the 9-month post-graduation grace period (as opposed to the more common 6 months)
during which students can concentrate on finding work rather than on paying back
loans.
- PLUS College Loans
Federal PLUS Loansare available to graduate
school students and parents of dependent undergraduate students as a means to funding
their education. 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. PLUS college loans first disbursed after
July 1, 2006, are fixed at an interest rate of 7.9 or 8.5 percent, depending on
whether the loan was borrowed through the Direct Loan or the FFEL Program. Additionally,
borrowers may have to pay a fee of up to 4 percent of the total loan to the federal
government and to a guaranty agency. PLUS loans disbursed before July 1, 2008 go
into repayment 60 days after the final disbursement date, while PLUS Loans disbursed
after this date go into repayment 6 months after the student graduates or drops
below half-time enrollment.
Private College Loans
Students and parents who have not received sufficient money in the form of federal
loans may still be able to supplement their savings with private loans. Private
student loans should be used as a last resort as they are usually higher in interest
and provide for less flexible repayment options. However, when necessary, private
college loans offer families the funds they need to complete their education.
Numerous private student lenders offer college loans to individuals who need them.
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.
Such information should also be supplemented with personal research.