Student Loans. Demystified.December 6th, 2014
As thousands of students around the world make their way back to college, many of them are experience first-hand the notion of being in debt. According to the chart from Sallie Mae, a leading student loan lender, Student Borrowing accounted for 18% of financing for college. In addition, another takeaway is that Student Income and Savings accounted for 12%. This means that on average, students footed 30% of their college bill.
Student loans can be a way to pay for higher education. In other words, students are making an investment in their future. However, the loan documents can be confusing and choosing the right loan is difficult. This page is designed to help students and parents understand the basics of student loans and provide additional resources.
To get a student loan, you will need to start off by first filling out the Free Application for Federal Student Aid (FAFSA). It is imperative that you fill this out because the Federal Government provides grants and scholarships to those who qualify. To fill out the FAFSA you will need a copy of your last year’s income tax return. Here is a list of Federal Grants that you can apply for.
Grants and scholarships are essentially gifts to you to pay for your education and you do not have to pay them back. Yet grants and scholarships do not always pay for the entire cost of attending college. So that you’re prepared, I want to introduce you to the most common student loans. They include:
- Perkins Loans
These loans are available to all students: part-time, full-time, graduate, and undergraduate. Highlights of a Perkins loan include: low interest rate, deferred payments, and no prepayment penalty. Depending on your status, undergraduates can get up to $20,000 over their undergraduate years while graduate students can get up to $40,000 of over their graduate years.
2. Stafford Loans
Like the Perkins Loans, these loans are available to all students. Highlights of this loan include: flexible repayment options, fixed interest rate (6.8%), and the interest can be subsidized if you demonstrate need. The loan limit ranges from $2000-$20000.
3. PLUS Loan
Lastly, the most popular form of a loan is the PLUS Loan. These are unique because students can get large amounts depending on the cost of attendance. Careful! This type of loan can only be taken out by parents, so they will need to pass a credit check. Unlike the other loans, interest is higher at 8.5% and is not subsidized. Also, repayment begins 60 days after the loan is made.
As you may have noticed, loans come in a variety of forms and can be a way to finance the cost of college. The best way to get more information about college funding is to meet with a financial aid advisor at your college. They will be able to provide you information about scholarships available your college and other types of financing. If you’re still seeking more information about federal funding, please visit these two sites:
- The Department of Education’s loan page (where you can view the Student Guide)
- The Federal Student Aid Direct Loans site