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Student Loans

Student Loans Explained--No Cosigner Student Loans are Available

By Kate

Funding a four-, eight-, or even ten-year education is very much a matter of give and take. Nobody wants to be in debt, but many students will agree that the benefits of an excellent education (and the dream-fulfilling career that will likely result) far outweigh the disadvantages to spending years paying down student debt. Even so, every student borrower wants to borrow using a plan with the smallest amount of interest possible. There are many different types of student loans out there, and, depending on a borrower's situation, some have some very distinct advantages over others. There are no cosginer student loans available from the federal government, for example. Students need to be well aware of what policies accompany each type of loan before taking one out. It goes beyond subsidized vs. unsubsidized, so pay close attention.

Federal Loans are No Cosigner Student Loans

• Perkins loans. This type of federal loan is available to students who demonstrate a high level of need. They carry with them a fixed annual percentage rate, for which the government picks up the tab until repayment begins. While most student loans require repayment to begin, deferments notwithstanding, up to six months after graduation, Perkins recipients have a full nine months before they have to worry about making payments on the loan. According to the Department of Education, about 1,800 postsecondary institutions offer Perkins loans to students in need. Students who are eligible for this type of loan will find out via the financial aid award notification letter their college sends them after they fill out their FAFSA form.
• Stafford Loans-- Subsidized. Another type of need-based loan, subsidized federal Stafford loans will carry a 6% APR for the 2009-2009 academic year. The government covers interest until the borrower begins repayment, which typically happens six months after he or she graduates from college. Subsidized loan recipients can take out a maximum of $3,500 per year if they are a first year student (freshmen), $4,500 per year if they have completed a year of study and have more than one year remaining before degree completion (sophomores), and $5,500 if they have finished two years and have more than one year left (juniors/seniors). Graduate students can take out up to $8,500 per year in subsidized Stafford loans.
• Stafford Loans-- Unsubsidized. Everyone is eligible for unsubsidized federal loans. But along with unrestricted access comes a downside: interest starts accruing upon dispersal rather than six months after a loan recipient graduates. This means they ultimately cost more. The limit for freshmen is $3,500 per year; the limits for sophomores and upperclassmen are $4,500 and $5,500, respectively. These loans have a 6.8% fixed annual percentage rate, and, as with most types of loans, qualifying graduates can defer repayment if they need to. Both subsidized and unsubsidized loans can be repaid using a variety of payment plans. Borrowers should exhaust their need- and merit-based aid before taking out loans whose interest begins to accrue upon dispersal of funds.

Institutional Loans

Institutional loans are exactly what you think they are: loans that come directly from the institution the borrower is attending. Every institution thus sets its own parameters in terms of interest, maximum loan amounts, and the time it takes to pay it back. Students should talk to a financial aid adviser at their prospective university to find out what kind of loans they offer, then weigh this against the features of all of the other types of student loans out there. After all, institutional loans are a great deal at some schools and unnecessarily pricey at others.

Parent PLUS

Parent PLUS loans have a higher fixed annual percentage rate than other loans: 8.5%. And unlike some loans, the government does not subsidize the interest. Most people use Parent PLUS loans to soak up the remaining balance owed for attending school in a given semester. They are called “Parent” PLUS loans because it is the parent, and not the student, that fills out the loan application, and who must pass a credit check. There is a much higher limit on the amount of money a borrower can take out on a Parent PLUS loan, which may explain the high interest. Unlike other types of student loans, which require borrowers to pay back six months after graduation, Parent PLUS loans require borrowers to start repayment 60 days after disbursal of funds, though some lenders allow for a deferment. There is a 4% fee for taking out a Parent PLUS loan.

Private loans

Most experts advise prospective borrowers to take out private student loans only after they have hit the maximum for their Stafford loans. Private loans vary greatly in most respects, including maximum amount, annual percentage rate, fees, and the loan term. Potential borrowers should compare loan details from a wide range of private lenders, and should not look solely at interest rates.

Anybody who wants to go to college can go to college, regardless of income. The federal government has made it so by making loan funds available to anyone who might need them. Potential borrowers who are savvy should explore their options before they decide on which loans they should accept, and which they should decline.

8/14/2008

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