Understanding the landscape of student loansSep 29, 2023
As the cost of education continues to rise, understanding your student loan options is crucial. This month, we explore the various types of student loans, and their features, and offer insights into managing your student loan debt.
Understanding the Landscape of Student Loans
Student loans come in various shapes and sizes, making it essential to comprehend the differences between them. While they all share the common goal of helping students fund their education, the terms, interest rates, and repayment options can vary significantly.
Federal Student Aid Loan Options:
Federal Stafford Loan
The Federal Stafford Loan is a common choice for students. For first-year students, the maximum loan amount available for the academic year is $5,500. There are two types of Stafford Loans:
Subsidized Stafford Loan
This loan is accessible to students through www.studentloans.gov. First-year students can receive a maximum of $3,500 based on their Expected Family Contribution (EFC). While attending college, the interest on this loan is covered by the Federal Government. Interest rates are determined annually in June, based on the 10-year Treasury Note, for the following academic year. Payments are deferred while the student is in college and begin six months after leaving college.
Unsubsidized Stafford Loan
Also accessible through www.studentloans.gov, first-year students can receive up to $5,500 regardless of their EFC. This is an entitlement loan, meaning all students who have submitted a Free Application for Federal Student Aid (FAFSA) are eligible. Interest on this loan accrues while the student is in college, with rates determined annually in June based on the 10-year Treasury Note. Payments are deferred while the student is in college and begin six months after leaving college.
Federal PLUS Loan
The Federal PLUS Loan allows parents to borrow an amount up to the full cost of attendance minus other financial aid and education loans for the academic year. Eligibility requires the parent to apply through www.studentloans.gov and not have an adverse credit history. If one parent doesn't qualify, the other can apply. If both parents are ineligible, the student may qualify for an additional $4,000 Stafford Loan. Interest accrues while the student is in college, and rates are set annually in June based on the 10-year Treasury Note. Payments begin 30 days after the final distribution or can be deferred while the student is in college.
Federal Grad PLUS Loan
The Federal Grad PLUS Loan allows graduate students to borrow up to the full cost of attendance minus other financial aid and education loans for the academic year. Students apply for this loan through www.studentloans.gov, and eligibility requires having an acceptable credit history. Lack of credit history is generally not considered adverse. All graduate students who have submitted a FAFSA are eligible. Interest accrues while in college, and payments begin after graduation.
College Loan Options
College loans may be offered by some colleges themselves, utilizing their school's endowment or a loan program established with a financial institution. The loan amount is determined by the college, and interest rates may vary, either being fixed or variable.
State Loan Options
State loans are provided by certain states through the college's financial aid office. The loan amount is specified by the college, and interest rates are determined by the state, which may offer both variable and fixed rates.
Private Loan Options
Private education loans are available from various banks and lending institutions. The maximum loan amount can cover the full cost of attendance after accounting for other financial aid and education loans. Private loans can be secured either by the student attending college or by a parent. Eligibility may depend on credit history, and in most cases, students may need a co-signer. Interest rates for private loans are typically variable and market-based.
Note: An adverse credit history is defined as having a current delinquency of 90 or more days on more than $2,085 in total debt, having more than $2,085 in total debt in collections or charged-off during the two years preceding the date of the credit report, or having derogatory events on the credit report within the five years preceding the date of the credit report.
Don't miss a beat!
Get my Newsletter sent to your email box with the latest strategies, tools, and college planning insight.
We hate SPAM. We will never sell your information, for any reason.