- Federal Student Loans
Federal student loans should always be your first choice when looking to obtain a student loan as they typically offer the best overall terms for the borrower. The most popular federal student loan is the Stafford Loan. To get federal student loans one must complete the FAFSA.
Types of Student Loans
A Stafford Loan is a student loan that is offered to eligible students in order to help finance their college education. The loan itself is described in detail in Title IV of the Higher Education Act of 1965 that guarantees full payment to a lender if the student does not satisfy the terms. The loan offers rates that are much better than private student loans since the US Government guarantees them in full.
With that said, these loans do have very strict eligibility requirements that needs to be met before any money is given out. Students applying for these types of loans must first fill out the FAFSA. The Stafford Loan is available directly through the FDSLP (Federal Direct Student Loan Program) or from a private lender through the Federal Family Education Loan Program. (FFELP).
Students receiving these types of loans are not required to pay off the loan until they cease to be a full or half time student in college. After the student leaves school, either by graduation or by not fulfilling the minimum credit requirements, a 6 month grace period kicks in. After that 6-month period, the loan repayment process begins.
Stafford Loans are available both as subsidized and unsubsidized loans. The difference being that subsidized loans are technically interest free for the time you are in college and for the 6 month grace period as the federal government will pay those recurring interest rates for the student. On the other hand, unsubsidized loans have interest added to the total amount even while you are still in college.
Federal Perkins Loan
The Federal Perkins Loan Program is a program established by the government to provide low-interest loans to help students finance their college education.
The need-based loan offered by the U.S. Department of Education is available to students who demonstrate financial need. To be considered for a Federal Perkins Loan, you must file a FASFA and wait to receive the Student Aid Report to see what options are available to you.
Perkins Loans have a fixed interest rate of 5%. The loan is subsidized by the government, so interest will not begin to accrue until the borrower begins repayment. The standard ten-year repayment period begins after a 9-month grace period once a student graduates, withdraws, or attends less than half time.
Perkins Loans are eligible for loan forgiveness for teachers in designated low-income areas, as well as for teachers of subjects in shortage areas such as math and science. Student loan forgiveness is also available to those who volunteer in the Peace Corps.
Parent PLUS Loan
There are many various ways of paying for college available to students to assist with the cost of college. There are times, however, when you exhaust all of your resources and still need money to cover your college tuition. If you are a dependent undergraduate student, then your parents can apply for a PLUS Loan to help you pay for educational expenses, such as tuition, room and board, and books.
What is a PLUS Loan?
A PLUS loan is one that your parents or legal guardian can apply for to assist you with your educational expenses. Parent PLUS loans can usually cover the gap between other federal student loans and grants. A credit check is performed for PLUS loans, however they are a little easier to obtain than traditional private student loans. The amount that can be borrowed is equal to the amount of tuition minus all other loans and grants received.
Do you need to fill out the FAFSA?
Yes and No. The FAFSA, Free Application For Federal Student Aid, does not have to be filled out to be considered for a PLUS loan, however, a lot of schools will still require the FAFSA as part of your financial aid package and may not verify the PLUS loan without a FAFSA in your financial aid file.
Where does the money come from?
The money for Parent PLUS loans either comes from private lenders under the Federal Family Education Loan Program (FFELP) or the funds may come from the government under the William D. Ford Direct Loan Program. Some states may act as a guarantor under the FFELP program, making it easier for parents to obtain the loan. This means that if your parent defaults on the loan, the state that is guaranteeing the loan will pay the funds back to the lender, and then your parent will have to pay the guarantor.
Other Parent PLUS Loan Information
- Since these loans are federally guaranteed, the interest rates are usually pretty low, but still carry a higher rate than a Stafford or Perkins Loan.
- PLUS loans are not based on need. There is a credit check, though not as stringent as private banks, making it easier for most parents to obtain the loan.
- Parent PLUS Loan repayment traditionally started about sixty days after disbursement, however starting July 1, 2008, parents have the option of deferring payments on PLUS loans until after graduation. Interest will accrue on the loans during deferral, but the deferment helps by providing more flexibility in the repayment of the loan.
- If your parent is not approved for a PLUS loan due to negative credit, they can apply with a co-signer, or you can resort to other financial aid options, such as private student loans.
- Unlike some private loans offered through banks, PLUS loans do not require any type of collateral.
- There is no income requirement for a PLUS loan, which makes it easy for most parents to obtain the funds needed so that their child can continue their education.
- PLUS loans can be consolidated. If your parent has PLUS loans out for other children, they can consolidate student loans and possibly lower their payments.
- The interest may be tax deductible. Have your parent talk to their accounting professional when filing their taxes.
Remember, a PLUS loan is not free money. It is a loan and has to be paid back. If your parent does not pay back the loan, it will have a negative impact on their credit history.
- Private Student Loans
Federal student aid isn’t always enough to cover all of your college expenses, especially as tuition and other costs continue to increase. Use the form below to compare rates on student loans.
Compare Student Loan Rates