Most students rely on a variety of funding sources to pay for college. Personal savings and family contributions are one of the first places students turn, but often these resources don’t cover higher- education costs.
Scholarships and grants are windfalls for college funding, because they do not require repayment. Performance and financial need are considered, and then eligible students are endowed with gifts that pay for tuition, books and housing. Do not leave free money on the table – apply for every grant and scholarship for which you qualify.
Loans are the most common funding sources for college: According to the National Postsecondary Student Aid Study (NPSAS), 65% of four-year undergraduate students take out student loans to help them pay for college. But unlike some other resources, loans must be paid back. Loans, and associated interestcosts, typically keep graduates in debt for 10 years or more.
Student loans are funded by a variety of sources including The United States Federal Government and private lenders like banks and credit unions. Federal loans are the most accessible to students, and offer the best repayment terms.
Private loans, also referred to as personal loans and alternative loans can be difficult for students to secure without cosigners. Interest rates are higher than federal student loans, but still fall below most other types of private financing (home, car, etc.)
The Federal Family Education Loan program (FFEL) is a now-defunct lending program designed to provide American college students and their families with federally backed student loans. These loans are now made through the U.S. Department of Education’s Direct Loan Program.
These distinct types of loans are available to students and parents seeking Federal Financial Aid:
To be considered for Stafford Loans and other Federal Student Aid, you must submit a Free Application for Federal Student Aid (FAFSA). Repayment begins six-months after graduation, and is governed by repayment schedules ranging in length from 10 to 25 years.
Perkins loans are federally funded loans administered directly by your institution of higher education (IHE). The loans are extended to students who have the greatest financial need. In general, families with annual incomes below $25,000 are eligible for Perkins Loans.
These three factors determine the size of your Perkins Loan:
The maximum annual loan for undergraduate students is $5500, with a lifetime loan maximum of $27,000. Graduate students can borrow up to $8000 each year, with a $60,000 lifetime cap.
Perkins Loan repayment starts 9 months following graduation, witha fixed 5% interest rate.
Direct PLUS Loans
Parents of dependent undergraduatestudents can borrow money under this federal program. Borrowers must be able to pass a credit check, and the student whose education is being funded must be a dependent that meets these minimum requirements:
Parents access PLUS loans by filing an application, and signing a Master Promissory Note (MPN). Interest rates are fixed at 7.9%, and borrowing limits are determined by subtracting all other financial aid award amounts from the total cost of attending school.
For students holding multiple federal loans, this program facilitates combining them into a single loan. A single monthly payment replaces the need to pay each loan individually, and the repayment terms of the loan can be extended for up to 30 years.
Students considering this loan should pay close attention to how their total repayment costs might be affected. Consolidating and extending the repayment schedule of your loans can add considerable costs to your total obligation.
State-specific funding varies – some have none, while others have a great deal. Your FAFSA places you in contention for some state loans, but other programs require separate enrollment. Your high-school guidance counselor and college financial aid office are equipped to sort out the specifics for your state.
You can also find valuable information on state higher education websites. In Minnesota, for example, students are eligible for loans, under a program called SELF.
SELF is not subsidized, so worthy credit is required for getting a loan. Minnesota residents who attend participating colleges are eligible to borrow up to $10,000 each year, at a fixed rate of 7.25%. Cosigners provide credit reinforcement that enables students with limited credit to apply.
Private student loans, such as those offered by Wells Fargo and Chase are designed to bridge the gap between your financial aid package and the true cost of your education. Private loans require borrowersto pass credit checks, and the loans often have higher interest rates than those subsidized by the U.S. Government.
Cosigners who are willing to share responsibility for your loan provide the credit resources you need to get private financing. Federal Student Loans should be considered first, but used appropriately; private loans can effectively pay for extra educational costs, without creating unmanageable financial burdens.
Institutional loans are extended by colleges and universities as a means to cover educational costs that remain after other forms of financial aid have been applied. Long-term and short-term institutional loans are used to pay for books, room and board, and other student expenses.
Institutional loans are by definition campus-specific, so interest rates and repayment terms are determined by each educator. Your financial aid office is best equipped to outline specific programs offered by your school.
Apply these responsible financial management principles, as you repay your student loans: