College Loans - Making Sense of the Many Available Options

By Tom Hanson, Contributing Writer

Updated: 1/7/2009

As you begin to pursue post-secondary coursework, you will need funds to pay the tuition bills associated with college. If you have exhausted all grant opportunities (funds that do not have to be repaid) and still find that you are unable to cover the course costs with personal funds, you will need to consider a student loan to cover the difference.

The positive aspect of such loans is that many institutions will lend money at very low interest rates for education. Therefore, even if you have a line of home equity credit or other borrowing options, you should look into the many student loan options available to you.

Federal Stafford Loans

If you know that you will need to borrow funds, you should seek out those options that offer the easiest repayment options as well as the lowest interest rates. Therefore one of the very first loans a student should look into the Federal Stafford Loan.

Under the umbrella of Federal Stafford Loans, there are two basic types, those that referred to as subsidized, and those that are referred to as unsubsidized. In either category, Stafford Loans offer several benefits. They include:

• A low interest rate.
• A deferred payment plan (no payments are due while you are in school).
• Flexible repayment options.

The simple difference between subsidized and unsubsidized is that the subsidized are also interest free while a student is in school. No interest is assessed until six months after the student completes their program. Unsubsidized will assess interest from the time of the loan, but again no payments will be due until you have complete your program. Obviously, a student should take full advantage of the subsidized option first if he/she qualifies.

For more details on Federal Stafford Loans, see http://www.staffordloan.com/.

Federal Perkins Loans

A Perkins Loan is actually a loan orchestrated by both the Federal government and the school a student attends. These funds are available to students with significant financial need and offer two of the same key positive benefits of the Stafford Loans:

• A low interest rate.
• A deferred payment plan (no payments are due while you are in school).

For more details on Federal Perkins Loans, see: http://www.ed.gov.

Private Loans

Private loans can be another key component to fill the financial aid gap. These loans are provided by private education lenders and terms vary with each lender. It is important to clarify all aspects of such loans, including interest rates and repayment options. More than likely a borrower will find these loans as advantageous or as attractive as the other forms mentioned but they still could be critical to helping a student make ends meet. In addition, because the student is borrowing for educational purposes, the loan still should have better terms than those associated with a home or car purchase.

For more details on private loans you may review the Sallie Mae site at http://www.salliemae.com/ or review any major national bank chain for options.

Federal Direct PLUS Loan program

This loan program is the largest source of loans for parents. Parents are able to borrow up to the full cost of school minus any other aid that has been awarded. The Plus Loan program has numerous positive benefits associated with the loan program.

• No Loan Limit.
• Fixed Interest Rates
• Flexible repayment options including a 60 day period after the loan is first disbursed.
• Easy access and minimal loan approval process (not based on financial need).

For details on the Federal PLUS Loan Program see: http://www.ed.gov

Graduate Direct Federal PLUS Loans:

This loan is an offshoot of the Plus Loan program noted above but is designed specifically for graduate and professional students. These loans offer the same benefits noted above:

• No loan limits (same regulations as above).
• Fixed Interest Rates
• Easy access and minimal loan approval process (not based on financial need).

For more details on graduate direct loans you may review the Sallie Mae site at http://www.salliemae.com or review any major national bank chain for options.

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