Student Loan Basics
Student loans are a form of financial aid designed to assist individuals seeking higher education. Loans are different from scholarships and grants in that the money must be repaid, usually with interest. These loans typically have low interest rates, do not require credit checks, and do not have to be repaid until after graduation. The two most popular forms of student loans include the Federal Stafford Loan and the Federal Perkins Loan.
Federal Stafford LoanFederal Stafford Loans are made available to college students to supplement other forms of financial income. Stafford loans are made easily available, and nearly all students who apply are eligible, regardless of credit. These types of loans can be subsidized by the government (the government pays the interest while you're still in school), or unsubsidized (you pay all the interest, although you can have the payments deferred until after you graduate), depending on the individual's particular situation. Benefits of Stafford Loans include a low fixed interest rate, increased borrowing limits, and no payments while attending school.
To qualify for a Stafford Loan, you must be a U.S. citizen or national, or a permanent U.S. resident. You must have completely filled out and submitted a FAFSA form, your school must determine your exact financial need, and you must be enrolled at the institution at least half time.
Stafford Loan LimitationsThe Stafford Loan carries two separate sets of limits. First, a combined base limit for the subsidized and unsubsidized loan, as well as an additional limitation for just the unsubsidized loan. Go to http://www.finaid.org/loans/studentloan.phtml for complete details about Stafford Loan limitations.
Federal Perkins LoanFederal Perkins Loans are low-interest loans designed to help struggling students with the cost of college. The Perkins program is campus-based, with the institution playing the part of the lender using funds provided by the federal government. Perkins Loans are subsidized, and there is a 10-year repayment period. This program is available at over 1,800 postsecondary institutions nationwide, and financial aid administrators at participating institutions have considerable discretion in determining the amount of money awarded.
Perkins Loan limitationsYour Perkins Loan award is determined by your institution's financial aid department.
Program limits are $5,500 a year ($27,500 cumulative) for undergrads and $8,000 a year for graduate students ($60,000 for undergraduate and graduate loans combined).
Private Student LoansIf, for whatever reason, the federal government cannot meet your borrowing needs, there are a number of private and alternative student loan supplemental borrowing programs available to you.
Private student loans should only be used as a supplemental source of income after you have exhausted all other types of student aid. As with any student loan, be wise and borrow only what you absolutely need.
The fees and interest rates charged by some private lenders can substantially increase the price of the loan. The most desirable private student loans will have rates around LIBOR + 2.0% or PRIME – 0.50% with no additional fees; such loans will be comparable to Stafford and Perkins Loan rates. It is common for private lenders to advertise a lower rate for the in-school and grace period, with a substantially higher rate kicking in when the loan enters the repayment phase.
Private student loan volume is growing rapidly, and if current trends continue, annual private education loan volume will surpass both Stafford and Perkins Federal Loan volume within the next decade. Please refer to the sources below for more information about private and alternative student loan programs.
For more information about student loans, please visit the following:
http://www.fafsa.ed.gov/http://www.staffordloan.com/
http://www.finaid.org/loans/privatestudentloans.phtml
Article Resources:
Fin AidStafford Loan
U.S. Department of Education
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