SCCAN Home

Choose wisely.

INTRO   |


Student and parent loans are important pieces of the financial aid puzzle for many families, but unlike grants, these awards must be repaid. It's a serious responsibility, but it shouldn't keep you from borrowing altogether. Just approach it like you have everything else in this process — get informed, know your options and weigh the risks. Borrowing responsibly can help you achieve your goal of going to college, while borrowing too much can hurt you in the future, long after college is behind you.

There are a variety of loans available to both students and parents, so read up and decide which ones might work best for you.

TYPES OVERVIEW   |


LOANS (money you have to repay later)

Federal Perkins Loans are made through participating schools to undergraduate, graduate and professional degree students, both full-time and part-time, who demonstrate financial need. These particular loans are repaid to your school.

Stafford Loans are for undergraduate, graduate and professional degree students. You must be enrolled as at least a half-time student to be eligible for a Stafford Loan. Stafford Loans are either subsidized and unsubsidized, meaning the government either pays the interest during school or it doesn't. Financial need is not a requirement to obtain an unsubsidized Stafford Loan, but you are responsible for paying the interest that accrues on unsubsidized Stafford Loans.

PLUS Loans (Direct or FFEL) are loans parents can obtain to help pay the cost of education for their dependent undergraduate children. In addition, graduate and professional degree students may obtain PLUS Loans to help pay for their own education.

Consolidation Loans (Direct or FFEL) allow student or parent borrowers to combine multiple federal education loans into one loan with one monthly payment.

ALL LOANS
















FEDERAL PERKINS LOANS
a low-interest loan for both undergraduate and graduate students with financial need

TOTAL AWARD:

Up to $5,500 per year for undergraduates.
Up to $8,000 per year for graduates.
These loans are currently repaid with a 5% interest rate.

HOW TO APPLY: You apply for a Federal Perkins Loan by filling out the Free Application for Federal Student Aid (FAFSA). Annual application is required.

(Not all colleges accept Federal Perkins Loans.)

FINE PRINT

The Federal Perkins Loan is based entirely on need, as determined by the financial aid office at your school. The amount you borrow depends on need and availability of funds.

Your school is your lender, and you’ll have up to 9 months after leaving school before you must start repaying your loan.

Part of the Federal Perkins Loan may be canceled for each year the recipient is a full-time special education teacher; teacher of mathematics, science, foreign language, or bilingual education; a full-time nurse or medical technician; a full-time employee of a family service agency providing services to high-risk children; employed in a criminal justice field; a Peace Corps volunteer; or a member of the U.S. Armed Forces serving in an area of hostility.

Loan Disbursement

Once the loan is approved by your school, the funds from your Perkins Loan will be sent directly to your school. You must contact the Financial Aid Office to make arrangements to receive your loan proceeds. Your school will either pay you directly (usually by check) or apply your loan to your school charges. You'll receive the loan in at least two payments during the academic year. You will receive a Disclosure Statement outlining the anticipated disbursement schedule, repayment schedule, and other terms.



















Federal Subsidized and Unsubsidized Stafford Loans for Students
Stafford Loans to Students
a low-interest loan made to students, either subsidized or unsubsidized depending on financial need

A subsidized Stafford Loan is available to students who have financial need. An unsubsidized Stafford Loan is an option for students who do not demonstrate financial need.

TOTAL AWARD:

The amount you can borrow depends on your grade level in school, program length, amount of other financial aid received, and — in the case of the subsidized Stafford Loan — the amount of financial need.

The annual maximums by grade level are shown below:

$5,500 — first year of undergraduate school (no more than $3,500 may be subsidized)
$6,500 — second year of undergraduate school (no more than $4,500 may be subsidized)
$7,500 — third year and beyond of undergraduate school (no more than $5,500 may be subsidized)
$20,500 — graduate/professional students (no more than $8,500 may be subsidized)

Depending on the grade level and the program length, independent students may borrow additional amounts (above these maximums) as unsubsidized Stafford Loans. Total (subsidized plus unsubsidized) lifetime maximums are listed below:

$31,000 — dependent undergraduate students (no more than $23,000 may be subsidized)
$57,500 — independent undergraduate students (no more than $23,000 may be subsidized)
$138,500 — graduate students (including any undergraduate loans — no more than $65,500 may be subsidized)

Subsidized Stafford Loan (5.60% interest rate for 2009-10)

If you have financial need, the federal government pays the interest on a subsidized loan while you're enrolled in college at least half-time and for six months after you're no longer enrolled. At the end of the six-month period, you become responsible for the loan interest and repayment.

Unsubsidized Stafford Loan (6.80% interest rate for 2009-10)

While unsubsidized loans are offered to students with no financial need at the same interest rates as those loans in the subsidized program, the student with an unsubsidized loan is responsible for the interest at all times. You can choose to pay the interest while you're enrolled, or have it added to the loan principal. Delaying interest payment by adding to principal, however, will increase the cost of the loan. Repayment of the principal begins six months after you're no longer enrolled.

HOW TO APPLY:

Once you decide which school you wish to attend and accept its offer of financial assistance, the school can certify you as eligible for a Stafford Loan.

Most schools provide you with a list of lenders to consider; you may select one of these or another lender of your preference. Once you select a lender, follow the directions from your school to complete the loan process.

FINE PRINT

Complete the Free Application for Federal Student Aid (FAFSA) and have your results sent to the financial aid offices of the schools where you are applying. Each financial aid office then determines if you're eligible for a Stafford Loan and, if so, includes this recommendation and loan amount in your financial aid award package.

You must be a U.S. citizen or an eligible non-citizen.
You must be enrolled or accepted for enrollment at least half-time at a participating school in an eligible program leading to a degree or certificate; or leading to a professional credential or certification from a state, that is required for employment as an elementary or secondary school teacher in that state; or be enrolled for not longer than a 12-month period in a course of study which has been determined as necessary for enrollment in a degree or certificate program.
You must be maintaining satisfactory academic progress in your course of study according to your school's standards and statutory requirements.
You must not be in default on an educational loan or owe a refund on an educational grant.
You must have a high school diploma or GED or pass an independently administered test, determined by your school, that demonstrates your ability to benefit from the program of study.
You must meet all of the other federal Stafford Loan program eligibility requirements prescribed by law at the time your loan application is processed.

Loan Disbursement

Once the loan is guaranteed, the proceeds from your federal Stafford Loan will be sent to your school. You must contact the Financial Aid Office to make arrangements to receive your loan proceeds. You will receive a loan guarantee and disclosure statement outlining the anticipated disbursement schedule, as determined by your school, for each loan guaranteed.

For more information, go to http://www.scstudentloan.org/students/loanprograms/federalstaffordloan.aspx




















Federal Consolidation Loans

If you are having trouble making the scheduled payments on your education loans, a Federal Consolidation Loan might be the solution. A consolidation loan reduces the number of loan payments you must make each month, lowers your total monthly education loan payment amount, sets a fixed interest rate for the life of the loan, and can help you avoid loan default and damage to your credit rating.

Remember, even though you will have lower monthly payments, an extended repayment period will increase the total interest charges over the life of the loan. You can, however, make early payments on your loan at any time without penalty, which can save you money.

Value

Education Debt Repayment Period
$7,500.00 - $9,999.99 12 years
$10,000.00 - $19,999.99 15 years
$20,000.00 - $39,999.99 20 years
$40,000.00 - $59,999.99 25 years
$60,000.00 and above 30 years

Loans that can be included in the consolidation loan are:

* Subsidized Stafford Loans
* Unsubsidized Stafford Loans
* Federal SLS Loans
* PLUS Loans
* Stafford Service Cancelable Loans
* Perkins Loans
* Federal Consolidation Loans*
* And other Federal Education Loans

*Federal consolidation loans can only be included if you have at least one other eligible loan made before or after the existing consolidation loan that will be consolidated.

Loan Disbursement

Your Federal Consolidation Loan funds will be sent directly to your lender or lenders. Shortly after disbursement, you will receive a Loan Guarantee and Disclosure Statement outlining the new loan amount, interest rates, monthly payment and other terms.













FEDERAL PLUS LOANS
Parent Loans for Undergraduate Parents (PLUS)

a fixed-rate loan for parents of dependent undergraduate students enrolled at least half time in an eligible program at an eligible school

TOTAL AWARD:

Your total award will vary, and will be sent directly to your child's school, where the amount will be applied first to tuition, fees, room and board and other school charges. If any funds remain, you will receive the amount as a check unless you authorize that money to be released to your child or credited to your school account.

HOW TO APPLY:

To obtain a Direct PLUS Loan (which must be repaid to the federal government at a fixed rate of 7.9%), you must complete a Direct PLUS Loan application and promissory note that comes from the school's own financial aid office.

To obtain an FFEL PLUS Loan (which must be repaid to a private lender or loan servicer at a fixed rate of 8.5%), you must complete a PLUS Loan application that comes from your child's school, your private lender or your state guaranty agency.

FINE PRINT

You will pay a fee of up to 4% of the loan amount, deducted each time a disbursement is made, in order to help reduce the cost of the loans either by the government or the agency administering the FFEL PLUS Loan program in your state.

Note that you will be required to pass a credit check when you apply for a PLUS Loan, but don't worry if your credit isn't perfect. If a relative or friend passes the check and agrees to endorse the loan, you may still be eligible to receive funds.

For more information about a Direct PLUS Loan, contact the Direct Loan Servicing Center at 800-848-0979, or go to www.dl.ed.gov

For more information about an FFEL PLUS Loan, contact the agency that administers the loan program in your state.


















FEDERAL PLUS LOANS vs HOME EQUITY LOANS

You might be considering paying for part of your child's college education through a home equity loan, which features tax-deductible interest. While this can be an attractive option for some, it's worth noting that this loan puts your home in jeopardy if you're unable to pay back the loan.

The U.S. Department of Education suggests you consider these points before taking out a home equity loan instead of a PLUS Loan:

INTEREST CAP :: If your home's equity line of credit has a high interest cap, your loan could get a lot more expensive despite your tax deduction if rates were to rise.
LIQUIDITY :: Taking out a home equity loan to pay for college means that asset is off the table if there's an emergency down the road.
INSURANCE :: While many home equity loans aren't protected for life's unexpected moments, PLUS Loans are fully insured against death, disability and periods of qualifying financial difficulty.


















FEDERAL PLUS LOANS vs CASHING IN INVESTMENTS

If you're trying to avoid borrowing money to help pay for your child's college education, you might consider cashing in long-term investments to cover the cost. This can be more expensive in the long run, though, and you may not realize how much it may cost you years from now.

The U.S. Department of Education suggests you consider these points before cashing in investments instead of taking out a PLUS Loan:

RETIREMENT :: For most parents, the tax savings of a retirement plan far outweigh the interest expense of PLUS Loans, so underfunding a tax-deferred retirement account to pay for college is extremely costly.
LIQUIDITY :: Using investments to pay for college means those assets are no longer available for emergencies down the road.



sc can is a program of the commission on higher education partnered with collegegoalssundaysc.org, collegeaccesschallenge.org & scgearup.org