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College Loans

Your eligibility for federal student loans is determined by the results of your Free Application for Federal Student Aid, or FAFSA. Federal loans include subsidized and unsubsidized federal student loans. Take advantage of federal loans if you are eligible because federal loans have lower interest rates than private loans and conditions are more flexible.

  • Stafford Loans

    Stafford Loans are the most popular college loans. They are available to undergraduate, graduate and professional students. Schools that participate in the William D. Ford Federal Direct Loan (Direct Loan) Program offer Stafford Loans. Subsidized Stafford Loans are need-based loans and unsubsidized Stafford Loans are awarded based on the cost of attendance and financial aid already awarded. Unsubsidized loans are not based on income.

    The amount you can borrow depends on your year in school and whether you have a subsidized or unsubsidized Direct Stafford Loan. A subsidized loan is a need-based loan. Dependent undergraduate students can borrow between $5,500 and $7,500 per year, combined in unsubsidized and subsidized loans. Independent undergraduate students can borrow between $9,500 and $12,500 per year. Graduate and professional school students can borrow up to $20,500 per year, with no more than $8,500 of that in subsidized loans.
  • Perkins Loans

    Federal Perkins Loans are low-interest loans for 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 along with funding from the federal government. The school is the lender. To be eligible for the Perkins Loan, students must demonstrate sufficient financial need.

    Depending on the time of application, financial need, and available funding, students 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. A bonus of the Perkins Loan is the extended grace period. Unlike other loans that have a 6 month grade period, Perkins loans have a 9 month grace period. Students entering certain high-demand fields such as teaching, nursing, and law enforcement can be eligible for loan cancelation. Volunteers for programs like the Peace Corps are also eligible for cancelation.
  • PLUS Loans

    Federal Parent Loan for Undergraduate Students Loans, or PLUS Loans, are available to graduate students and parents of dependent undergraduate students. PLUS loans are available through the William D. Ford Federal Direct Loan (Direct Loan) Program. Parents can only take out one PLUS Loan for their children during the same enrollment period. To be eligible for either version, parents have to have decent credit. Applicants can use a cosigner if their credit isn’t high enough. PLUS Loans for graduate students also require that the student borrower has good credit and has already applied for their maximum federal loan amount.

    PLUS college loans are more expensive than Stafford or Perkins loans, but they have a higher borrowing limit. The borrowing limit is equal to the total estimated Cost of Attendance (COA) minus other financial aid received. For example, if the cost of attendance is $6,000 and a student receives $4,000 in financial aid, they can borrow up to $2,000. The cost of attendance includes tuition and fees, room and board, books and supplies, transportation, and miscellaneous educational expenses. The school determines and certifies the amount. Interest accumulates immediately after the first disbursement.

Private Student Loans

Private student loans are also called alternative loans, because they are an alternative to federal loans. While federal loans have more flexibility and lower interest rates, there are tight borrowing caps. Private lenders have more borrowing options for students who still need money. There are a lot of lenders, each with different rules, rates, fees, and benefits. Do your research to find the best lender. Contact your college’s financial aid office for a list of top lenders.

Private loan rates fluctuate with the economy and vary from lender to lender. Each student lender sets their own interest rates and chooses their own benefits. Private lenders offer more money than federal loans. Most private loans calculate their number similar to federal loans where the borrowing limit equals the cost of attendance minus other financial aid. Private lenders, however, usually require students to start paying immediately after the first disbursement.

The main source for private loans are banks. Be aware that fluctuations in the banking industry affect private loan sources. Credit unions are also vulnerable to market. Investigate your private student loan options closely to make sure you are getting the best rate possible. Remember to always read the fine print.

Student Loan Consolidation

Consolidating loans can simplify your student loan repayment process because they combine several payments into one. Interest rates on consolidated loans are often lower than loans that are not consolidated. Federal loans can be consolidated during repayment, grace periods, deferment, and forbearance. Loans cannot 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 possible rate increases but does not allow them to benefit from possible decreases. There are no application fees or prepayment penalties. Still investigate your options carefully to not lose out on borrower benefits.

Last Edited: December 2015

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