Education Loans are
self-help aid that is borrowed money and it must be repaid.
Many students will borrow money to finance a portion of their
education, whenever their scholarships, grants, family contribution,
and/or work-study does not cover the full cost of attending
a particular school. Education loans are offered through a variety
of sources such as: the federal government, state government,
institutions, employers, private lenders, banks, credit unions,
and family members.
Student Loans
Most students rely on the federal government to help finance
their education through the federal Student Financial Assistance
(SFA) Programs. To be eligible to apply for one or more federal
loans, you must be a student enrolled in school at least half-time,
meet certain restrictions, and complete the FAFSA (link). Remember,
you must submit the Free Application Federal Student Aid each
year to be eligible to apply for the federal loan programs.
There are two major loan
programs offered by the Federal government:
•
Federal Perkins Loan
A Federal Perkins Loan is a low-interest (currently 5%
-- the lowest of any educational loan program) loan for
undergraduate and graduate students, enrolled at least
half-time in a degree program, with exceptional financial
need. These funds are awarded on a first-come basis to
qualified applicants. Your school is the lender and the
loan is funded by the government with a portion contributed
by your school. You must repay this loan to your school.
The interest on the Perkins Loan is
subsidized which does not accrue while you are enrolled
in school. Repayment of this loan begins nine months
after you graduate, leave school, or drop below half-time
enrollment status. Under certain conditions, repayment
can sometimes be further deferred, or even cancelled.
For example, all or part of your loan may be canceled
if you teach in certain areas, become a nurse or medical
technician, work in certain law enforcement fields or
for child or family service agencies, or serve as a
full-time volunteer in specific programs (such as the
Peace Corps). You may also be able to defer repayment
if you resume your studies on at least a half-time basis.
Federal Stafford Loan
Federal Stafford Loans are low-interest rate (currently
capped at 8.25 percent) loans available to undergraduate
and graduate students enrolled at least half time. These
loans funded directly by the federal government.
There are two types
of Federal Stafford Loans:
•
Subsidized
Stafford Loans are awarded on the basis of
financial need. With subsidized loans, the federal
government pays the interest (subsidizes) on the
loan while the student is in school, during a grace
period after the student graduates or leaves school,
and during any authorized deferment periods (but
not during the repayment period).
•
Unsubsidized
Stafford Loans are not based on need -- borrowers
do not have to demonstrate financial need. With
unsubsidized loans, the borrower is responsible
for interest payments from the time the loan is
disbursed. In most cases, the principal and interest
can be deferred while the student is in school --
but the interest is capitalized.
You can receive a Subsidized and Unsubsidized Stafford
loan for the same enrollment period. Some students combine
both loans to borrow the maximum loan amount permitted
each year. Repayment of a Stafford Loan begins six months
after you graduate, leave school, or drop below half-time
enrollment status. Repayment of your loan(s) may be deferred
or forbearance for certain reasons without a penalty.
Stafford Loans are
administered by both the:
•
Federal
Family Education Loan Program (FFEL)
FFEL funds are provided by private lenders such
as: banks, credit unions and savings and loan institutions.
Your school’s financial aid office or state’s
education agency should have a list of participating
lenders.
•
Federal
Direct Student Loan Program (FDSL)
FDSL funds are provided by the U.S. government directly
to you and your parents through your school.
Many of the terms and conditions (the interest rate, loan
maximums, deferments, and cancellation benefits) for both
programs are similar. The major differences are: the source
of the loan funds, some aspects of the application process,
and available repayment plans. The FDSL and FFEL programs
also offer Parent Loans (PLUS) and
Consolidation Loans.
Parent Loans (PLUS)
The Federal PLUS (Parent Loan for Undergraduate Students) is
a simple low-interest rate (capped at 9%) loan for parents of
dependent undergraduate students (link) enrolled at least half
time in school. This loan is funded directly by the federal
government, which is not based on financial need. PLUS Loans
are available through both the Direct Loan and FFEL programs.
The interest rate on a PLUS loan is variable (capped at 9%)
and is adjusted each year, normally in July. Interest is charged
on the loan from the first date of disbursement until the loan
is paid in full. Your parent(s) can borrow up to the total cost
of attendance minus the financial aid awarded to you in your
financial award letter.
For example:
Cost of Attendance:
$12,000
Financial Aid Awarded to you is:
-
$8,000
Your parent(s) can borrow up to:
=
$4,000
To be eligible to receive a PLUS Loan, your parents generally
will be required to pass a credit check. If they are denied
a PLUS loan due to their credit report, they may be able to
receive a loan if someone, such as a relative or friend who
is able to pass the credit check, agrees to endorse the loan
and promise to repay the loan, if your parents should fail to
do so. Your parents may also qualify for a loan without passing
a credit check, if they can demonstrate that extenuating circumstances
exist.
Your parent(s) is responsible for repaying the loan. Repayment
begins 60 days after the final loan disbursement for the academic
year, which is based on a ten-year repayment plan. There is
not a grace period for these loans. Your parents must begin
repaying both the principal and interest while you are enrolled
in school.
Consolidation Loans
A Consolidation Loan is a fixed low interest-rate, federal government-guaranteed,
no collateral loan. This loan is designed to help student and
parent borrowers simplify loan repayment by allowing the borrower
to consolidate several types of federal student loans with various
lenders and repayment schedules into one loan from a single
lender. A Consolidation Loan simplifies the repayment process
because you make only one monthly payment.
Once you consolidate your student loans, the interest rate is
the weighted average of all your loans being consolidated rounded
up to the nearest 1/8th percent. The interest rate will never
be higher than 8.25%. Consolidation Loans are available through
both the Federal Direct Loan program and the Federal Family
education Loan program (FEEL).
A Consolidation Loan will
allow you to:
•
Lower your monthly payments
up to 50 - 60%
•
Extend your repayment period
•
Offer various repayment options
•
Repay your loan early with no penalties
(if you decide to accelerate your payment schedule)
•
Lock in a low fixed interest rate for
the life of the loan
•
Consolidate for free - with no fees and
no credit check for approval
•
Make a convenient single monthly payment
to a single lender
