College and the education loan borrowing process
I don’t think it’s any surprise to parents that loans from institutions are the largest form of student aid. Nor is it surprising that these loans entice students to pursue degrees unavailable without them. In fact, most kids, my son included can expect to receive a loan as part of a financial aid package in many cases. Recently, after attending a Financial Aid workshop I also learned that there are two other broad categories of loans: loans based on financial need and the loans not based on financial need. Huh?
After a 10 minute conversation with a college loan officer my “Huh?” question was answered as followed: “Need-based loans usually share three distinct features…”
- Low interest rates.
- No payments on principal are needed until the student graduates or leaves school.
- In-school interest subsidy may be used (which means the government pays the interest that accrues on the loan while the student is in school and during the six-month grace period after graduation resulting in substantial savings).
(Legislative Update: For Subsidized Stafford Loans for which the first disbursement is made on or after July 1, 2012, and before July 1, 2014, students will be responsible for the interest that accrues on the loan during the grace period. If a student does not pay the interest accrued, the interest will be capitalized to the principal amount of their loan when the grace period ends.)
I was then informed of the non-need-based loans which are used to help families that can’t afford to pay their expected contribution from savings and current income.
As mentioned earlier, many colleges will include one or more of these loans in a student’s award letter. The three features of the non-need-based loans are that they:
- Usually have higher interest rates
- Have no in-school interest subsidy
- May also require immediate repayment of principal.
As a member of the lower middle class my wife and I were told we “make too much for need-based loans”, so our interest has centered on 3 important loan opportunities for households in our bracket. The Unsubsidized Stafford Loan, which, if approved, will reduce the amount of interest payments. With this a promissory note must be filled out by your child and if the app. is approved the funds are then sent directly to your kid’s school of choice. The PLUS loan (a parent loan) allows for the total cost of education minus any aid (scholarships etc.) received. In most cases there is a quick turn around (approval) and here, too, the money is sent directly to the university/college.
Private or alternative loans would be my last option because they have higher interest rates, plus a credit check is required, lengthening the approval waiting period. Colleges and universities often provide a list of private loan sources and the College Board provides private loans for students.
The borrowing process, if needed, can be overwhelming to parents of college-aged students. It is nice to know that that are alternatives out there away from traditional loans. Now to take advantage of them!
Miscellaneous Student Loan Topics
- Bank Loans
- Be Smart About Private Student Loans
- Before Borrowing Student Loans
- Choosing the Best Loans
- Choosing Private Student Loans
- Choosing the Right One
- Choosing the Right Student Loan for You Video
- College Cost Calculator
- College Loan Rates
- College Loans Parents
- College Savings Plan
- College Tuition Costs
- How to Compare
- Continuing Education Loans
- Credit Score
- Credit Score Student Loan
- Dept of Education
- Federal Student Loans Forgiveness
- Federal Vs Private
- Government Loans
- GradPLUS Loan
- Graduate School Funding
- Hierarchy of Loans College on the Cheap
- Hope Education Credit
- Independent Student Status
- Interest Rates
- LIBOR And Prime Rates
- National Student Loan Database
- Parent PLUS Loans
- Paying Off
- Rights Responsibilities As a Student Loan Borrower
- School Loan Interest Rates
- School Loans
- Student Financial Aid Services
- Student Loan Calculator
- Student Loan Lessons Learned
- Student Resources
- Successful Application
- The Student Loan Checklist
- Tips on How Much to Borrow
- US Department of Education Loan
- US Department of Education Loan Payment
- US Department of Education Loan Servicing
- US Department of Education Online Payment