Student Loan Help

Nearly everyone would agree that a student should start with financial aid process with scholarships and Federal loans. But in this age of significant inflation in education, that often isn’t enough to cover tuition, room and board, books, etc. And some parents would prefer their children to take on more of the responsibility for paying their education. To meet these needs, both for-profit and not-for-profit lenders have significantly increased the availability of private (sometimes called alternative) student loans.

Unlike Federal loans, private loans are not guarenteed, so the lender is taking on more risk that the student may default. Therefore, these loans are more expensive that Federal loans (hence, why students should max out on Federal loans before applying for private loans). Despite their higher cost, private loans have grown on average 25% a year over the last five years and are expected to continue their very strong growth.

While no FAFSA is required for private loans, the lenders will look at your credit score and credit history to determine the risk associated with lending you money. As many students don’t have much of a credit history (or if they do, a very high credit score), it is important to have a credit-worthy co-signer on the loans. A credit-worthy co-signer will significantly increase the odds of your private loan application being approved.=

Many of these lenders offer up to $30,000-40,000 annually, capped at the cost of attendence minus other financial aid. These loans typically have a 10-30 year term depending on amount. They also have flexible repayment options, including 1) immediate repayment, 2) immediate payment of interest-only (defer principle), 3) or ability to defer both interest and principle while in school.

Undergraduates interested in private loans can learn more at www.acteducationloans.com.

Graduate students should visit www.gradloans.com for grad-specific private loans.

f you are either already enrolled in college or just getting started there are a couple of basics that every college student should know especially if it helps them get money. First, you must remember to fill out your FAFSA. That is the Free Application for Federal Financial Aid. You can fill this out at www.fafsaonline.com or www.fafsaapplication.com. The Fafsa is based on your last years tax returns so make sure to have those updated before you start. If you are a procrastinator like most of us you want to guesstamate what you think your taxes are going to be. You are always able to update your information. You will not be able to proceed with the student loan process if you do not complete this first step. Remeber your fafsa must be completed by june of the upcoming year. Follow this easy step and it should make the rest of the process for applying for student loans more manageable.

A recent addition to the Federal Loan Program is the Graduate Plus Loan. This is a fixed interest rate loan for graduate students where the student is the borrower and not the parent! The graduate student is still required to fill out a FAFSA and it is stronly advised that the gradaute student apply for both unsubsidized and subsidized in Stafford loans before applying for the Graduate Plus Loan. There are credit requirements for the Graduate Plus Loan however if the graduate student is denied the Graduate Plus Loan he or she can add a co-signer to help strengthen the application.

The Graduate student is eligible to borrow up to the cost of education less any financial aid they recieve. Like the unsubsidized Stafford Loan, the Graduate Plus Loan is all unsubsidized. This means that the graduate student is responsible for interest that accrues on the loan during this period.

There are a number of repayment options for the Graduate Plus Loans including deferred repayment while the student is enrolled at least half-time in school.

The Gradaute Plus loan is a great opportunity for Gradaute Students to borrow a low cost low that is backed by the federal government.

The Student Loan Network: Stafford Federal Student Loans, Parent PLUS Loans, Student Loan Consolidation, Private Student Loans, Education Loans/College Loans

The next major form of Federal loans are Plus Loans (Parent Loans for Undergraduate Students). These loans aren’t made to students - they are made to parents. No FAFSA is required - parents submit an application and sign a promissory note. And unlike the Stafford Loan which has a relatively low loan limit, parents can borrow up to a college’s full Cost of Attendence, less any other financial aid the family is eligible for. (I think the lenders are trying to politely inform students that their parents are a better credit risk - hence the significantly higher loan amounts”¦).

Speaking of risk, parents are eligible for Plus loans based on their creditworthiness. While the lender does not check a FICO (credit score), they will ensure that the borrower has had no “adverse credit history” - e.g. bankruptcies, defaults, foreclosures, etc. If a parent is denied a Plus loan, their undergraduate will be eligible for an larger unsubsidized Stafford loan.

The rate on a Plus loan is currently a fixed 8.5% (2006-07 year). The rate on Plus loans is updated every July 1. As we wrote regarding Stafford loans, there are two Plus loan programs - the Direct loan via your school or a FFEL loan through a private lender.

Unlike a Stafford Loan, there is no subsized loan - the government will not pay the interest for you while the student is in school. In fact, repayment begins 60 days after funds are disbursed, with a repayment term up to 10 years. Some lenders will allow parents to defer payments on Plus loans while the student is in school - the deferred amount is added to the principle (called “capitalizing” ) until graduation. If you prefer, you can make interest-only payment during the years the student is in school.

To learn more, visit www.parentplusloans.com

Stafford loans are the most common loan product available for education, and are available for both undergraduate and graduate students.. Stafford loans come in two forms: subsidized and unsubsidized. If you get a subsidized Stafford loan, the government pays the interest on the loan until you graduate - these loans are for those who are able to demonstrate financial need. With an unsubsidized Stafford loan, you are responsible for paying the interest (but can defer this amount until graduation - the interest will be added to your loan amount). Both subsidized and unsubsidized Stafford loans have a fixed interest rate of 6.8%.

To apply for a Stafford Loan, you must (as discussed in an earlier post) submit the FAFSA. Your school will then send you a Student Aid Report which tells you what and how much financial aid, including a Stafford Loan, you are eligible to receive.

One downside to Stafford Loans is that the loan amount limits are relatively low, particularly so in our environment of rising education costs. For example, dependent undergraduate freshmen can only borrow $2,625, rising to $5,500 by senior year for a maximum Stafford debt of $23,000. Dependant undergraduates can borrow up to $46,000 (with a cap of $23,000 in subsidized loans). Graduate students have a cap of $138,000 (with a subsidized cap of $65,500). For this reason, many couple a Stafford loan with a Plus or Private loan (to be discussed in future posts).

Despite the caps, the Stafford loan is a smart place to start your loan application process. For more information or to apply for a loan, visit www.staffordloan.com. (Note that some schools participate in the William Ford Federal Direct Loan Program - that’s a mouthful isn’t it? - which requires you to borrow Stafford Loans directly from the government through your school. Approximately 25% of colleges are direct lending schools).

For most, the grants and scholarships written about in the last post won’t come close to covering the cost of attendance. So the next step should be to explore Federal Loans. There are a number of Federal Loans, and the next few posts will discuss each in greater detail:

• Federal Perkings Loan
• FFEL Stafford Loan
• Direct Stafford Loan
• FFEL Plus Loan
• FFEL Graduate Plus loan
• Direct Plus Loan

The Federal loan that is typically discussed first is the Federal Perkins Loan, which is available to both undergraduate and graduate students. These loans are offered by participating schools - not banks - to students who demonstrate the greatest financial need. The student will repay the principle and interest to the school after graduation, with a term up to 10 years depending on how much you borrow. The interest rate on Perkins loans is fixed at 5%.

Undergraduate students are eligible for up to $4,000 a year, with a maximum of $20,000 over their undergraduate studies. Graduate students can receive up to $6,000 a year, with a maximum of $40,000 (but this amount includes their undergraduate loans).

As discussed earlier, you’ll need to complete the FAFSA to apply; in addition, you’ll need to sign a promissory note. The promissory note is a binding legal contract that says you agree to repay your loan according to specific terms - it is an important document that must be reviewed and its implications understood before you sign.

We all know attending college is expensive. While the government contributes billions toward financial aid, it just isn’t enough. And if we really wanted the government to pay the full cost for everyone, our tax rates would be closer to the 50% or more paid by many Europeans where Education is state-sponsored. But this isn’t about geo-economics - it’s about how you can best fund your education. So, since you do need to carry the burden of financing your education, where do you turn?

Grants and scholarships are funds for education that you don’t have to repay. Grants are based on your financial need - for example the Federal Pell Grant offers up to $4050 (for 2006-07) depending on your financial need and the cost of attendance at your school. Your Student Aid Report (SAR) will inform you if you’re eligible for a Pell Grant, and for how much money. The SAR should also tell you how to apply - there is no cost to apply for a Pell Grant.

Scholarships are another source of funds for education that don’t have to be repaid. These can range for scholarships disbursed by your school for merit (for athletes, exception students, future piano maestros, etc) to those offered by your local Lions Club. There are millions of need- and merit-based scholarships out there worth over $10 Billion. Research these scholarships early as many require an application and/or interview. There are many websites listing scholarships - the Student Loan Network operates www.studentscholarshipsearch.com which currently has over $3B in scholarships available for search.

We’ll get to loans in future posts - but be sure to start your funding process by considering and applying for grants and scholarships. It’s rare in life that you’ll find an opportunity for free money”¦

Ok, you’ve completed your FAFSA - good job. Now the Department of Education will use the information you provided to determine your “need.” To determine your need, the DOE calculates the gap between the cost to attend your school (COA - Cost of Attendance) and what your family can afford to pay (EFC - Expected Family Contribution). The DOE will then send you a Student Aid Report (SAR), which you’ll receive in 3-6 weeks after submitting the FASFA. Read it carefully, checking that all the information appears correct - if there are errors, contact your school’s financial aid office immediately. If there are no errors, forward the SAR to your school’s financial aid office.
If you’d like more information on the FAFSA and it’s process, listen to Chris Penn’s Financial Aid Podcast #370 at http://www.financialaidpodcast.com. The podcast can be listened to on your computer or iPod and gives a complete, line item by line item description of the FAFSA form.

The next post will cover the next step in the process - looking for Free Money!!