April 6, 2014

College and Student Loans

At some point in your academic career, especially if you’re attending a private college or university, you’ll probably think about taking out a federal student loan to help meet your college costs, or your parents may consider taking one out to help contribute to your education. Government loans can be an integral part of a complete student aid package, and many students would not be able to afford college without them. Keep in mind, whether you’re attending art school or pursuing an accounting degree, or any other higher education program, loans should probably be your last option, taken advantage of only after you’ve exhausted all your grant and scholarship resources and find yourself still falling short of what you need to pay for school. In fact, some college loans will only be given to those students who demonstrate a financial need. But interest rates on these college loans are very low; they’re much better than taking out a conventional loan from a bank.

There are different kinds of federal student loans, but one thing most of them have in common is that borrowers must maintain at least half-time student status while using the money. If for some reason your course load falls under half of a full-time load, you will have to begin repaying the money immediately.

Understanding Student Loans

One program is the Perkins Loan, which is based on financial need. Under this program, undergraduates may borrow up to $5,500 per academic year, up to $27,500 total. Graduate students may borrow up to $8,000 per year, with a cap of $60,000, which includes any loans taken out as an undergraduate. The money is borrowed directly from the school and repaid to the school. Repayment begins six months after graduation, and you make take up to ten years to repay. Perkins Loan recipients are usually required to maintain full-time or part-time status.

Another program is the Federal Stafford Loan. You don’t have to prove financial need to qualify for these college loans. This program is also known as the Federal Family Education Loan, or FFEL Stafford Loan. All these names refer to the same loan program. The FFEL Loans are either subsidized or unsubsidized. Subsidized loans means the federal government pays the interest while you’re in college and for six months after you graduate. For unsubsidized loans, the borrower becomes liable for the interest immediately upon taking out the loan. Interest payments can be made while you’re in school, or you may choose to defer them until you graduate and begin paying off the principal.

Under the FFEL Stafford Loan, students who are dependents of their parents may borrow up to $31,000 over the course of their education. The amounts per year vary, ranging from about $3,500 the first year of college up to $7,500 the third and fourth years. Students who support themselves may borrow more – up to $57,500 over the course of their undergraduate study. Again, the amounts vary by school year, and the amounts are roughly double those that dependent students may borrow. Graduate students may also take out Stafford Loans, and may borrow up to $20,500 per year, and up to $138,500 total including any undergraduate loans. As of July 2010, Stafford Loans are made by the U.S. Department of Education, and you have between ten and twenty-five years to repay, depending on how much you borrow. There are also Direct Stafford Loans – the same rules apply as above.

Parents of dependent undergraduate students may take out loans to help their children get an education. These are called PLUS Loans, and the borrower must have good credit. PLUS Loans can be used to cover the difference between the cost of a child’s college and the total of all other financial aid they receive. The rules for repayment of Stafford Loans also apply to PLUS Loans.

As you can see, understanding federal student loans doesn’t have to be complicated. They can be an important part of paying for your college education, and knowing the differences between the different programs can help you in understanding your various options.

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