|
Students and parents have a variety of education loan options, but what's the best product for your family? Learn the difference between Subsidized and Unsubsidized Stafford Loans, PLUS loans and private loans. Get the low down on interest rates and fees before you sign on the dotted line.
Need Based Loans:
Federal Subsidized/Unsubsidized Stafford Loans
Federal Subsidized Stafford Loans are fixed rate, need-based loans. A student can borrow $3,500 for their freshman year, $4,500 for their sophomore year and $5,500 for their junior, senior and higher years. The Unsubsidized Stafford has a set limit of $2,000 per undergraduate year. The interest is paid if subsidized by the federal government until six months after the student leaves college. The interest is fixed at 6.8% during repayment and the Unsubsidized Stafford for the life of the loan. Stafford loans carry both life and disability insurance on the student. If the student dies or becomes disabled the loan balance is forgiven. These loans are in the student's name and are eligible for the student loan interest tax deduction.
2009-2010 Stafford Loan Limits
All independent students, and those whose parents we denied a PLUS loan, may receive an additional $4,000 in unsubsidized Stafford Loans. All undergraduate students are eligible for an additional $2,000 in unsubsidized Stafford Loans.
Unsubsidized amounts already included:
Freshmen (<30 credits) $5,500
Sophomores (30-60 credits) $6,500
Juniors & Seniors (>60 credits) $7,500
Graduate Students $20,500
Medical Students (MD/DO) $40,500
All graduate students are eligible for the GradPLUS loan which allows students to borrow additional funds.
Federal Perkins Loans
Federal Perkins Loans are low interest need-based loans (the rate is fixed at 5%) ranging up to $5,500 per year. The interest is subsidized by the federal government until six months after the student leaves college. The college determines which students will receive this loan and the amount of the loan. These loans are in the student's name and are eligible for the student loan interest tax deduction.
Nursing Student Loans
The Nursing Student Loan program provides long-term, subsidized, low-interest fixed rate 5% loans to full-time and half-time students who show a financial need. The nursing loan is only eligible for those pursuing a course of study leading to a diploma, associate, baccalaureate or graduate degree in nursing. Participating schools are responsible for selecting loan recipients and for determining the amount of assistance a student requires.
You are eligible to apply for this loan at a school that participates in the Nursing Student Loan program.
Sophomore: $2,500
Junior: $4,000
Senior: $4,000
Graduate: $4,000
Total Aggregate Loan Limits (including Perkins):
Undergraduate: $15,000
Graduate: $30,000
Non-Need Based Loans:
Institutional Loans - Some colleges have their own student loan programs. The terms and rate of these loans vary with each college.
Private Loans - These loans will be a variable rate either based on the Wall Street Journal (WSJ) Prime Rate or the one, three, or six month LIBOR (Longon Inter Bank Offering Rate). These will usually have an additonal margin based upon the student's and or co-signer's credit worthiness. Verify with your private loan lender your period of deferrment as some are only four years; which in some cases will be before you graduate. Currently rates are very low (4-6%) if your credit is excellent, however these are 10 year loans. Please keep in mind that the interest may be low today, but in 5 years after your child graduates and they enter repayment, where will the interest rates be then? Some lenders will allow the co-signer to be removed after a period of on-time payments. Private loans can never be consolidated with any Federal loans. There are only a few companies currently offering private consolidation loans and two of the more reputable ones are Wells Fargo and Chase.
Federal PLUS Loans
Federal PLUS (Parents' Loans for Undergraduate Students) Loans are not need-based loans. The borrower pays the interest and repayment begins immediately. However, if the parent or student is enrolled in college on at least a halftime basis, the repayment may be deferred while the borrower or the student is in college.
The interest rate on Federal PLUS loans is fixed at 8.5% for FFELP and 7.9% for Direct. If a parent is not credit worthy and cannot obtain a PLUS Loan, the student can borrow an additional $4,000 per year in Unsubsidized Stafford loans for the first year of college and $5,000 for the second, third, fourth, and fifth years of college (the limit for an independent student). If denied the parent may also apply with a co-signer if needed. The amount of a PLUS Loan that a parent can borrow is limited to the COA minus the financial aid award offered to the student. The amount of financial aid offered to the student does not include Federal Perkins loan if declined or college work-study.
These are signature loans in the parent’s name. If the signatory parent (only one parent must sign for the loan) dies or becomes disabled before the loan is repaid, the remaining loan principal balance is forgiven. Should the student pass away only the PLUS loan will still be forgiven. PLUS Loans may be consolidated into one loan and repaid over a period of up to 30 years depending on the balance at the time of consolidation.
Note: Only the parent or stepparent may be able to take out a PLUS loan. A legal guardian cannot take out a PLUS loan unless it is permitted by the school.
Note: The Financial Aid Office has the authority to determine that the parents are “precluded by exceptional circumstances from borrowing a PLUS loan.” The student can then borrow a Federal Unsubsidized Stafford loan up to the independent student limit.
Note: A college or university has the right to refuse to certify a loan application or to certify the loan for less than a student is actually eligible to receive. As long as the college presents its reasons and explains them in writing, its decision is final.
Note: For a student who is declaring bankruptcy, the college cannot use the bankruptcy as a reason for denying a
Federal Loan Repayment Plans Note: There are various types of repayment plans for federal loans:
1. The Standard Repayment Plan requires a fixed amount each month—at least $50—for up to 10 years. The length of the actual repayment period depends on the loan amount.
2. The Extended Repayment Plan allows an extended loan repayment over a period that is generally 12 to 30 years, depending on the loan amount. The monthly payment may be lower than it would be if the same total loan amount were repaid under the Standard Repayment Plan. However, the total amount of interest, over the life of the loan, may be higher because the repayment period may be longer. The minimum monthly payment is $50.
3. Under the Graduated Repayment Plan, the payments are lower at first and then increase generally every two years. The length of the repayment period generally ranges from 12 to 30 years, depending on the loan amount. The monthly payment may range from 50% to 150% of what it would be if the same total loan amount were repaid under the Standard Repayment Plan. However, a higher total amount of interest is paid because the repayment period is longer than it is under the Standard Repayment Plan.
4. The Income Contingent Repayment Plan bases the monthly payments on yearly income, family size, and loan amount. As income rises or falls, so do the monthly payments. After 25 years, any remaining balance on the loan is forgiven, but taxes may have to be paid on the amount forgiven.
5. An Income-Sensitive Repayment Plan bases the monthly repayment on yearly income and loan amount. As income rises or falls, so do the monthly payments. Each of the payments must at least equal the interest accrued on the loan between scheduled payments.
Consolidation Loans
A Consolidation 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 repayment schedules into one loan. Even one loan can be consolidated into a Direct Consolidation Loan in order to get benefits such as flexible repayment options. If the borrower has more than one loan, a Consolidation Loan simplifies the repayment process because there is only one payment per month. Also, the interest rate on the Consolidation Loan may be lower than what is currently being paid on one or more loans. If a federal education loan is in default, a Consolidation Loan may be received only if specific conditions are met.
Both the Direct Loan Program and the Federal Family Education Loan (FFEL) Program offer Consolidation Loans. Direct Consolidation Loans are available from the U.S. Department of Education. FFEL Consolidation Loans are available from participating lenders such as banks, credit unions, and savings and loan associations.
A lender may not refuse to consolidate a loan because of:
• The number or types of loans to be consolidated
• The type of school attended
• The interest rate that would be charged on a consolidation loan
• The types of repayment schedule available
Federal Loan Deferment
Upon graduation from college, assume that several students find that they cannot immediately find a job or the job they do find is low paying. If this situation arises, can the student loans be deferred? The answer to this question is yes, if the student qualifies. The student qualifies for deferment of the student loans when the student meets one of the following four criteria:
The student must be enrolled at least half time at an institution that meets the eligibility requirements for a particular loan.
The student must be enrolled in a graduate fellowship program or a rehabilitation training program for the disabled.
The student must be unemployed (for up to three years) but actively seeking employment.
The student is facing economic hardship (for up to three years). Economic hardship includes a broad range of reasons that enable the student to defer the loans.
The Perkins loan program provides for deferment of loan repayment. Perkins borrowers (except hardship) also get a six-month grace period following deferment. Loan forgiveness for the Perkins loan may be obtained if the student is employed in one of the following services:
• Full-time teachers teaching a "shortage subject" or serving children with disabilities or low-income students or pre-school children.
• Full-time law enforcement officers or correction officers.
• Nurses or medical technicians.
• Full-time social services employees serving low-income children and families.
• Military personnel serving in “areas of hostility.”
• Peace Corps or ACTION volunteers.
• Health Education Assistance Loan (HEAL) and Health Professional Student Loan (HPSL) borrowers engaged in similar service or "shortage" activities.
The procedure for obtaining a loan deferment is simple. Before the first payment is due, send the appropriate forms to the student or parent to sign and forward to the lender/servicer.
The periods of deferment are not included in the number of years allowed for repayment. Interest will not accrue in the deferment periods if the type of loan the student is deferring did not accrue interest in its original loan period (e.g., Subsidized Stafford or Perkins Loans). However, if the type of loan being deferred did accrue interest in its original loan period (e.g., PLUS Loans, Unsub Staffords), the interest will accrue throughout the deferment period.
The rules for consolidated loans are the same as the above rules. The exception is that if the consolidated loan contains one or more loans that would accrue interest in the original loan period, the entire consolidated loan will accrue interest during the deferment period.
State Loan Programs
Some states have loan programs. The state Higher Education agency can provide the details of its loan programs.
|
