Student Loans

Here you can also find our How to Pay for College Book Store. This book store provides many books about how you can finance your college education. While our main discussion here is about the student loan part of the financial aid picture, as part of your information gathering, we encourage you to browse the books within our book store.

Student loans are only one part of the financial aid picture, and the prudent high school student should also look into the many scholarships and grants available, along with work-study programs, in order to pay for college.

Regardless of the parents financial status, if you want to go to college in the United States and you meet the academic requirements, you can go to college because of the many financial resources available. Money is not a prohibitive factor if you want to attend a college or university in the United States. Government agencies in the United States understand the need for an educated work force. An educated work force allows for economic growth, and an improvement in the overall economy. Therefore, there are several student loan options available for the American college or university student.

There are three types of student loans available for undergraduate and graduate students in the United States. These three types are federal loans, private loans, and consolidated loans. Lets examine federal loans first.

Student Loans - Federal Loans Made to Students

There are two types of federal loans available for college students. These are federal loans made to students ( Stafford and Perkins Loans) and federal loans made to parents ( PLUS Loans).

Federal loans made to students ( Stafford and Perkins Loans) do not require a credit check and they do not require collateral. While enrolled half-time or greater, payments can be deferred until after graduation with a 6 month grace period. If the student decides to enroll less then half-time (part-time enrollment), then the 6 month grace period will start. If he/she enrolls full-time after part-time enrollment, then again payments can be deferred until after graduation.

There are two types of Federal Student Loans available to students. These are the Federal Stafford Loan and the Federal Perkins Loans.

Student Loans - Federal Stafford Loan

Federal Stafford Loans come in two forms. The type of form is dependent on the distribution channel for the loan. The following are the two forms of Federal Stafford Loans.

• Federal Family Education Loan Program (FFELP)
  The source of the money is federal but the lenders are banks, savings and loans, and credit unions. Usually the lender will provide various payment options but just like in all federal loans made to students, payments can be deferred until after graduation. In 2005, approximately two-thirds of all federally subsidized student loans were FFELP.
• Federal Direct Student Loan Program (FDSLP)
  The channel for these loans starts at the US Department of Treasury, goes through the Department of Education, then to the college or university, and then to the student.

Federal Stafford Loans can be subsidized or non-subsidized. Whether a loan is subsidized or not depends on the financial need of the student. With a subsidized loan, the federal government will pay the interest on the loan while the student is enrolled in college. Unsubsidized loans will have their interest accrued, and the interest must be paid after graduation. It should be noted that 2/3 of subsidized Stafford loans are awarded to students with family Adjusted Gross Income of under $50,000. All students are eligible for the unsubsidized Federal Stafford Loan.

As of July 1, 2007, Stafford Loans allow dependent undergraduates to borrow up to $3,500 their freshman year, $4,500 their sophomore year and $5,500 for each remaining year. Graduate students can borrow $20,500 per year, although only $8,500 of that can be subsidized. There is a cumulative limit of $23,000 for an undergraduate education. For both undergraduate and graduate education together, there is a total $65,500 limit .

To apply for a Stafford Loan, you must fill out the Free Application for Federal Student Aid (FAFSA). For more information on the Stafford Loans, go to Stafford Loan Program Overview.

Student Loans - Federal Perkins Loans

Federal Perkins Loans are provided by the individual schools and the school acts as the lender, but the source of money is federal. These loans are designed for students who can display an extensive financial need. These loans are for both undergraduate and graduate students. With regards to the federal loans available to college students, this is probably the best loan for the student. This is a subsidized loan, and therefore the federal government will pay the interest while the student is enrolled full-time, and there is a 9 month grace period. There are no originator or default fees, the interest rate is 5%, and the repayment period is for ten years.

For a Federal Perkins Loan, the college financial aid office determines the amount of loan granted to the student. There are limits and these limits are $4,000 per year for undergraduate and $6,000 per year for graduate students respectively. The cumulative limit for the undergraduate student is $20,000 and for the graduate student is $40,000.

Student Loans - Federal Loans Made to Parents

These loans are designed to fill any financial gaps that might be left after other federal student loan sources have been pursued. PLUS stands for Parent Loan for Undergraduate Student. The amount allowed covers what ever is needed to cover the remaining expenses for college. There is no limit on these loans.

The channels of distribution are the same as the Stafford Loan. They can come from the Federal Family Education Loan Program (FFELP) where the lender is a private lender such as a bank, or from a Federal Direct Student Loan Program (FDSLP) where the lender is the federal government. Starting July 1, 2006, graduate students and professional students i.e medical school, law school, etc., can also take out PLUS loans. Actually PLUS Loans can be broken down into two types, one is called the Parent PLUS (designed for parents of undergraduate students) and the other is called the Grad PLUS (designed for grad and professional school students).

PLUS loans disbursed after July 1, 2006, have a fixed interest rate of 8.5%. These are unsubsidized loans and unlike Perkins and Stafford loans made to students, the payments on these loans can not be deferred and need to start right away. There is no grace period for these loans.

The most important difference between the PLUS loan and the Perkins and Stafford loans is that for the PLUS Loan, the parent or grad/professional student is completely responsible for repayment. If the parent or grad/professional student has problems paying back this loan, it is their credit rating that will suffer.

Student Loans - Private Loans

These loans are offered by private lenders such as banks, savings and loans, and credit unions. With these loans the federal government is not involved and therefore there are no federal forms to fill out. These, just like most other loans you get from your local lender, depend on your credit score. A private loan typically would be taken out by the parent in order to cover the cost not covered under the federal loan program.

Student Loans - Consolidated Loans

Finally, there is available the option of consolidating variable interest rate loans into one single loan. For a consolidated loan, you are obtaining one loan, in order to pay off all the current student loans. The objective is to create a new loan which has better terms, most importantly a lower interest rate. The new consolidated loan would have a fixed rate interest. Federal loans disbursed before July 1, 2006, were of the variable rate type, and consolidation is a viable option if you want to lock in a lower interest rate. Whether or not you obtain a lower interest rate depends on the timing of the consolidation. Every July 1st, the federal government sets the interest rate. To lock in a lower interest rate, you would want to consolidate before an anticipated rate hike. Or if the interest rate is expected to drop, you should then consolidate at that time. The interest rate for the consolidated loan is the weighted interest rate mean for the current loans that a student has, rounded up 1/8 of a percent.

For further information on student loan consolidation, go to Student Loan Consolidation, and Student Loan Consolidation Rate.

Student Loans - Conclusion

Given the rapid rise of cost for a college education which has taken place over the past ten years, few students today can go to college with little to no education financing. Currently, the average debt for a graduating senior of a four year college is $19,237. This does not include PLUS loans, but does include Stafford, Perkins, state, college and private loans.

Most students, by virtue of obtaining a degree have increased their earning potential. So while college may be expensive, in the long run it is worth the time, energy and expense incurred. The United States Federal government understands the importance of an educated work force and therefore has made available student loan programs to the student who desires to further his/her education. Here we have provided a look at the federal and non-federal student loan programs available. Grants and scholarships are available as well, and even though these are not discussed here, the prudent high school student will determine his/her grant and scholarship options. Almost all colleges and universities also have available work-study programs. Given the many financial resources available within the higher education system in the United States, if you want to go to college, and you meet the academic requirements, you can attend. Remember that an education can never be taken from you and it is an investment in your future.