Student Loan FAQs

Parents of Undergraduates

What are the different types of student loans available for my child?
There are two main types of student loans for undergraduate students – federal loans and private loans. Federal loans are either federally funded or federally backed (or insured) student loans.

Federal Perkins Loans:

• Taken out in the student’s name
• Fixed 5% interest rate.
• Maximum award of $4,000 per undergraduate year.
• School-awarded.
• Very limited availability.

Federal Stafford Loans:

• Taken out in the student’s name.
• Are usually borrowed through private lenders.
• The student must be enrolled at least half-time.
• Interest rate is fixed at 6.8% for unsubsidized Stafford loans for undergraduate student; 5.6% for subsidized Stafford loans for undergraduate students only; 6.8% for both subsidized and unsubsidized Stafford loans for graduate students for the 2009-2010 academic year.
• Award limits are based on the student’s year in school and dependency status.
• Repayment normally starts six months after leaving school (or attending less than half-time).
• There are two types of Stafford Loans - subsidized (for which you must demonstrate financial need and the interest is paid by the federal government while you are in school) and unsubsidized (which is not based on need, but you are responsible for all the interest that accrues).

Federal PLUS Loans (Parent Loans for Undergraduate Students):

• The student must be a dependent, undergraduate.
• A credit check (an inquiry into credit history and credit rating) is required.
• You do not have to show financial need to qualify.
• Can borrow up to the total cost of attendance, minus any other aid you receive.
• The loan is not subsidized (the government pays no interest).
• Repayment normally starts 60 days after full disbursement of the loan. However, some lenders may enable borrowers to defer payments while the student is enrolled.

Private Loans:

• Taken out in the student’s name, usually with the parent as a co-signer, or in the parent’s name.
• Are borrowed through private entities, banks, credit unions or lending companies.
• Interest rates can vary.
• Can borrow up to the total cost of attendance, less other financial aid.
• Interest can be capitalized (added to the loan principal) more often, increasing the amount of money you ultimately are charged for borrowing.
• Approval and terms for private loans are based on credit history. If your rating is bad or non-existent, you might need a co-signer to qualify. Poor or minimal credit may also result in a higher interest rate on your loan.

I'm the legal guardian of an undergraduate student. What type of student loan can I take out for her/him?
Legal guardians may not borrow a PLUS loan. Private loans are an option for credit-worthy individuals or majority age willing to take on the financial responsibility of the loan.

What is the cost of attendance (COA)?
The cost of attendance (COA) is a number (generally a yearly figure) that is designed to help summarize the various costs of attending a school that takes into account

1. tuition and fees
2. on-campus room and board (or an allowance for these amounts for off-campus students)
3. allowances for books, supplies, transportation, loan fees, and if applicable, dependent care,

It also generally includes various miscellaneous and personal expenses including an allowance for a purchase or rental of a personal computer and can also include additional costs related to a disability.

Most schools publish the COA annually in brochures and online college search sites, so it may help to check with some of these resources. Additionally, if you have unusual circumstances which have higher costs, it might help to discuss these with the financial aid office.

What's a Parent PLUS loan?
Parents may be interested in the federal PLUS loan, the "Parent Loan for Undergraduate Students." PLUS is a federally-backed loan with a low fixed interest rate that parents can take out in amounts up to the cost of attendance, less other aid received. Parents may also access a Private Loan (no involvement of the federal government), either as a borrower or as a co-signer with the student borrower. Go to the Parent section to view those loan options.

Do I have to file the FAFSA before I apply for a PLUS loan?
No, the PLUS loan does not require completion of the FAFSA.

However, filing the FAFSA may allow for other aid sources (such as Stafford or Direct student loans) to be included in the financial aid package.

What types of Private Loans are available for parent borrowers?
Parents may borrow through a Private Loan (no involvement of the federal government), either as the borrower or as a co-signer with the student borrower. Private loans in which the parent is the co-signer are referred to as "Private Student Loans." Private loans in which the parent is the borrower are often referred to as "Sponsor Loans."

What does it mean to co-sign on a student loan for my child?
There are many good reasons to co-sign on a student loan for your child. You will help him or her build a credit history, and help him or her qualify for a loan they wouldn't be able to get on their own. When you agree to co-sign, you are representing to the lender that you will make the payments if your child does not. The loan's payment history becomes part of your credit history and will show up on your credit reports.

How do I tell the difference between student loans?
There are many different kinds of student loans. First, know the difference between federal and private student loans. You should always use federal loans first. They carry lower, fixed interest rates and often have better terms than private (or alternative) loans. Second, know the difference between the types of loans in your financial aid award.

• Subsidized Stafford Loans: a federal loan for which the government pays interest while you are in school
• Unsubsidized Stafford Loans: a federal loan for which you pay interest while you are in school
• PLUS loans: federal loans for graduate students and parents of undergraduate students
• Private loans: loans from banks or other non-government sources

If you need to use private loans, consider all of the costs. Private loans can have origination fees, different ways of compounding interest, and higher interest rates than government or federal loans. You should also know your credit score. The lower your score, the higher your rate will likely be on a private loan. If you are an undergraduate student, you will almost definitely need a co-signer to be approved for a private loan. Fees and penalties can be higher with private loans than with government-backed, or federal loans, and your repayment terms may not be as favorable.

When choosing a student loan, investigate your options carefully. Consider the following:

• Total cost of the loan (after all of the interest and fees have accumulated)
• APR, or annual percentage rate, and fees
• Borrower benefits (such as cash back or interest rate reductions if you make payments on time)
• Deferment options

How do I apply for a student loan?
Use the student loan comparison tools on SimpleTuition to shop around for the loan that’s right for you. Compare rates, monthly payment, total cost of loan, borrower benefits and more. When you have decided on a loan, either click on “apply” to be taken to the online application, or click on “call” to see a phone number where you can call to apply over the phone. The approval and processing of applications varies greatly from lender to lender, so it is difficult to say how long it will take. Some lenders offer e-signature, which will allow you to complete the process online and receive your funds faster. In order to complete an application for a student loan with most lenders, you will need the following information:

• Your full name, social security number and date of birth
• Your permanent address and the number of years you have lived there (no P.O. boxes)
• The amount of your monthly rent or house payment
• Your home phone number
• Your current occupation and position
• The name of your employer and how long you have been employed by them
• The business phone number of your employer
• Your gross annual income
• The contact information for a reference (name, address, home/business phone number)
• The name of your school (or the school the student for whom the loan is for is attending)
• The social security number, contact information and employment information for your co-signer (if applicable)

Some banks will send or express mail the necessary documents to you to complete the loan. As with federal student loans, you will be required to sign (or e-sign) a promissory note whereby you agree to accept the terms of the loan (rates, fees, APR, and repayment) and then repay it.