College Student Loan News and Info

Financial aid for college Findind a financial wayStudent financial aid is quickly becoming a synonym for student loans. Close to half the students in a four year college takes out a student loan. It is a rare student that is not in need of the loan process. The three most common government sponsored loans are called Stafford Loans, Perkins Loans, and Plus Loans.

Stafford Loans are those that students borrow themselves. Loans disbursed after July 1, 2006, have a fixed interest rate of 6.8%. Previously disbursed loans are capped at 8.25% but can vary below that ceiling annually. Those that take out a Stafford loan are limited to $3,500 the first year, $4,500 the second and $5,500 the third and fourth and fifth, if needed, and $8,500 per year for graduate school. An undergraduate can borrow up to $23,000 total, while the cumulative limit for undergraduate and graduate borrowing is $65,000. Eligible borrowers can get part or all of their loans subsidized. What this means is the government pays the interest while you are in school. You do not start paying off the loan until six months after graduation or your withdrawal date.

A Perkins Loan is the other type of federally subsidized student loan. They carry a fixed interest rate, currently 5%, which is deferred while the student is in college and the first none months after graduation. An undergraduate can borrow up to $4,000 a year, with a cap of $20,000. For a graduate student, Perkins loans are capped at $6,000 a year and $40,000 overall, including any Perkins loans borrowed as an undergraduate.

Finally, we have a PLUS Loan. This is a government-sponsored loan for the parents. Loans disbursed after July 1, 2006 has affixed interest rate of 8.5%. For previously disbursed loans the rates were capped at 9% but can vary below that ceiling annually. A parent can borrow enough to cover attendance minus any financial aid for college and loans that they are receiving. Unfortunately, the loan will need to be repaid immediately. Of course not in full, but payments will start immediately. This type of loan would always remain in the parent’s name.

Who should borrow you or your child? It used to be the student had to max out on Stafford loans before their parents could take on a PLUS loan. This has changed. Parents are now eligible to borrow the entire cost of college whether or not their children took advantage of the Stafford program or not. Even if you plan to repay the loan yourself, have your child borrow first. Students get the lower rate on Stafford loans and attractive fixed rate on Perkins loans, not to mention being able to defer the interest payments.If you still need to borrow from the PLUS program, but your credit disqualifies you, you do have a fall back. Your child will be allowed to get unsubsidized Stafford loans. Government Financial Aid for College is always the best way to go if available, yet private student loans do come with competitive interest rates.

This entry was posted on Monday, January 21st, 2008 at 7:50 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.