Last year we struggled with the fact that we needed to fund our college students dreams without much money in the bank. When we turned to student loans we had no idea there were so many different types of student loans. Let us walk you through a quick recap of what you can expect from the 8 different types of student loans.
The 8 Types of Student Loans:
* Federal Stafford Loan (2 types: subsidized-unsubsidized)
* Federal PLUS Loan (Parent Loan for Undergraduate Students)
* Federal Perkins Loans
* Bank Loans
* State Loans
* Other unsubsidized Loans (Stafford)
* Loans from other sources
* College Board Extra Credit Loans
We had no idea that you could even attempt to get a federal loan without submitting an application to FAFSA. Once you submit your application to FAFSA you then must wait for your Student Aid Report (SAR). With SAR in your hand now you can go and find a student loan that meets your needs.
Another eye opening experience. To me the interest rates associated with student loans are highway robbery. As you will soon find out, these rates are high but most lenders are competitive with each other.
1. Federal Stafford Loan – Subsidized: (government pays interest until you graduate) most popular loans and available to both undergraduate and graduate students. It’s really hard to beat these interest rates.
These rates are for subsidized loans to undergraduate students.
* 6.0% for the 2008-09 school year
* 5.6% for the 2009-10 school year
* 4.5% for the 2010-11 school year
* 3.4% for the 2011-12 school year
* returns back to 6.8% for the 2012-13 school year.
From this example it is best to borrow less money now and wait till 2011 to borrow heavy because of the interest rate decrease. And remember on January 1st of each year you must re-apply through FAFSA to received your student loan for the following year.
2. Unsubsidized Federal Stafford Loan – easy to get and student can pay interest as you go to keep the total loan amount down once they graduate.
Students who are working while attending college, negotiate with your lender to make monthly payments and round up to the nearest tens. If your interest is 8 dollars a month pay 10 dollars which shouldn’t be that hard. Any time you can pay on the principal the better.
3. Federal PLUS Loans for Parents – allows the parent to take out the entire cost of students college education. It is not dependent on “how much a parent makes” and it does offer a nice tax break but this could change with a new president.
You can negotiate repayment of your PLUS loan. Chose from graduation date repayments or start 60-90 days after the loan money.
4. Federal Perkins Loans – students who are having financial difficulties should look into the Perkins Loan. The problem with these loans are they are limited, however you will receive a competitive loan interest rate.
Federal Perkins Loans are reported to your credit bureau. Do it right and you will have an excellent credit rating. Default or late on payments will spell trouble. Be very careful.
5. Bank Loans – if you are turned away by the federal government then turn towards a bank loan. These loans are usually a little higher and each bank has different regulations. I’d shop hard before signing on the dotted line. Some banks do offer Stafford Loans, but they are more strict on their policies.
Banks might limit their loans to full time students and repayment options will be limited. However you might find some incentives on re-payments of your student loans.
6. State Student Loans – you will need to visit your local bank to pick up an application. Most states offer a guaranteed student loan but the banks will administer your funds.
These types of student loans are usually more expensive to borrow from when you compare them to federal loans.
7. Additional Unsubsidized Stafford Loan – These types of student loans are determined by the federal guidelines and are reserved for borrowers who fall into the “independent category.
8. Other types of student loans – look at all your options and discuss these with your financial aid advisors at school. Military dependents, corporations and businesses will offer student assistance. Don’t be afraid to ask.
There is one place that will pay your tuition fees if you can repay them within a year. Affiliated with around 2000 universities, Academic Management Services offer student assistance, but be ready for some expensive rates. These funds should only be used in dire emergencies.
I cannot stress this enough, PLEASE make sure and submit your application to FAFSA early in January of each year. Once your receive your SAR then you can get down to business and be first in line to receive your student loan.