Know Your Options

If you are interested in using student loans to finance your college education, be aware of all your options. There are three primary types of student loans available: Stafford, PLUS and private loans. Before you take on the extra debt from a student loan, be sure you have exhausted other options, including scholarships and federal/state grants which can cover all or part of your education costs.

Stafford Loans

The Stafford loan program is operated through the United States government. To apply for these loans, you first need to complete the Free Application for Federal Student Aid. If your family contribution is determined to be too low to cover the costs of your education, you may be eligible for receiving a subsidized loan. If the subsidized loan does not meet your financial needs, you may also be eligible for an unsubsidized loan. With a subsidized loan, the interest on the loan is paid by the government. With an unsubsidized loan, you can either pay the interest or have it added onto the principal amount of the loan. The total amount you can borrow per year is based on your year of schooling, your financial need, your academic status (full-time, part-time), and your classification as dependent or independent. A first-year dependent student can borrow up to $5,500 per year compared to $9,500 for an independent student. Graduate students can borrow up to $20,500 each year. Six months after you drop below half-time, leave school, or complete your degree, you will be expected to begin repaying your Stafford loans.

PLUS Loans

PLUS loans also are available through the United States government. Unlike the Stafford loans which are the responsibility of the student, these loans are the responsibility of the parents. The parents take out the loans on behalf of their children. The maximum amount that can be borrowed through one of these loans is the total cost of attendance minus any other financial aid that has been received. For example, if the yearly attendance cost is $10,000 but the student is receiving a $2,000 scholarship, the PLUS loan can be worth no more than $8,000. Parents have the option of beginning to repay the loan 60 days after the final disbursement or waiting until 6 months after the student drops below half-time, leaves school, or completes the degree.

Private Student Loans

Private student loans are amounts borrowed from non-government banks, credit unions or other types of lenders. Because they are not managed by the government, there is no standard interest rate. Total amounts that can be borrowed also vary, but are usually similar than those for the PLUS loans. Unlike the government student loans, private student loans also require credit approval of either the student or his parents, depending on who is applying. Repayment of the loans varies as well.

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