Minnesota Student Loans
In 2011, an approximate 1.3 million students graduated from college, the Bureau of Labor Statistics reports. According to U.S. News, 68% of them carried their degree in one hand and student loan debt in the other. Paying for college has become a troubling concern for pretty much every student who enters the doors of an admissions office. According to the College Board, a four-year degree from a public college in Minnesota costs about $10,527 per year and private schools are even more costly at $35,242 for the 2014-2015 academic year.
As the price of education mounts, students are left scrambling for funding from local resources, parents, their own pockets, and other sources. At the end of the day, all those things combined rarely cover the full price of tuition, and students are left with no choice but to borrow the funds from a third party.
Private loans are available to students anywhere in the nation, but interest rates are often steep in exchange for greater borrowing potential. Of course, good credit is also required. Another detriment of these loans is that repayment plans are not available. They are as strict as any other mainstream bank loan, meaning you’ll have to repay them in line with the terms the lender sets forth, just as you would an auto or personal loan. Carefully examine how much you want to borrow, your interest rate, and a realistic estimate of the income you expect to be bringing in. You’ll be paying off your student loans for a very long time.
By the time you’re five years out of school, you will likely have other adventures you would like to pursue, such as buying a new vehicle, a home, or expanding your family. These all cost money that you might not have if it’s all tied up for 10 to 20 years with student loan payments, and defaulting can mean serious damage to your credit and the potential for legal action and garnishment of your wages. The Project on Student Debt reports that around 20% of all student loan debt held by 2012 graduates was in the form of private loans.
Very few states offer funding apart from the federal government, and lucky for you, Minnesota is one of them. The Minnesota Office of Higher Education oversees the SELF Loan program for Minnesota residents in need of funding for their education. These loans are available to out-of-state residents who are attending Minnesota-based schools as well as Gopher State residents who are attending schools elsewhere in the nation. SELF loans are not private loans. They often boast interest rates well beneath what both private lenders and the federal government offer. Likewise, they’re upfront about their rates, because credit doesn’t matter so everyone gets the same interest rate across the board. This means you don’t have to wait to apply to know what you’ll actually be paying. At the end of 2014, the fixed interest rate for SELF Loans was set at 6.9% while the variable rate was at 3.2%, which can change with every quarter, but by no more than 3% in any given year.
Different from private loans, SELF Loans are more like federal funding in that they come with limitations. Students enrolled in a four-year program can borrow up to $10,000 every year, with a maximum lifetime limit of $50,000, while those in graduate school can do the same with a lifetime cap of $70,000. Cosigners have to be older than 23 unless they’re a sibling, in which case they must be 18 or older, and they must meet credit history requirements. Since 1984, the SELF Loan program has delivered more than $2 billion to students. Repayment is somewhat different with SELF Loans. It starts three months after your payment disbursement, when you’ll be required to start paying on the interest you’re accruing. One of the drawbacks to SELF Loans is that you’ll receive no grace period to prepare for repayment. Likewise, deferments are not an option. So if you can’t pay, you’re out of luck. Repayment plans are standard or extended from 10 to 20 years, depending upon how much money you borrowed overall. These terms often make federal loans more appealing to many students. Federal student loans come in a few options, including:
- Direct PLUS Loans
- Perkins Loans
- Direct Loans
Direct PLUS Loans
Federal Direct PLUS Loans won’t afford you the ability to borrow endless amounts of money, but they do come with pretty great interest rates that make repayment a lot easier on the wallet. These loans are specifically tailored to graduate and professional students — who are often accustomed to paying more for everything when it comes to post-undergrad college life. You cannot borrow more than you need. That means the maximum that you’ll be approved for is whatever is left of your tuition balance after all other forms of aid have been applied.
Often, grad students are a little shocked at the 7.6% interest rate with these loans, but keep in mind that they are higher than undergrad interest rates, but quite in line or below the rates of competitors for other graduate loans. Deferments are available to postpone payments until graduation, however, part-time or greater enrollment is required.
U.S. News reports on an outstanding $62 billion among over 3 million Parent PLUS Loan borrowers as of December 2014. The Parent PLUS Direct Loan doesn’t differ much from a GradPLUS. Parents may request payment deferment from their servicer while their students are enrolled at least half-time and for six months after they graduate or are no longer enrolled in school.
Federal Direct Loans
The subsidized loans offer students the best perk among all federal student loans — the government pays your interest for you while you’re in school. Alas, the unsubsidized loan does not come with such perks, but both are good loans and the most popular among federal education loans. To be eligible for either, you have to be enrolled at least part-time at a school that grants degrees or certificates, in addition to being an American citizen and having completed the Free Application for Federal Student Aid also known as the FAFSA. Regardless of which loan you opt for, your interest rate is set at 5.05%. Graduates pay more at 6.6%.
Loan limits have nothing to do with credit or other forms of aid, but rather what year you’re in at school. Both loans come with a six-month grace period following graduation or dropping below part-time status before your first payment is due.
Federal Perkins Loan
Perhaps the least common of all federal student loans, only around 500,000 students were expected to use these loans during the 2011-2012 school year, Money-Zine reports. Certainly, their popularity isn’t due to the loan itself, but rather its limited availability. Funding for Perkins Loans are distributed directly to schools, which then have the choice of which students will benefit from them. They are need-based loans and not every school participates with them, so it’s best to check and be sure yours does if you’re banking on getting one.
These loans do come with a low 5% fixed interest rate, making them rather appealing to anyone who can get their hands on one. However, loan limits are lower than private loans and PLUS Loans and more in line with Direct Loan options. Undergrads can only borrow $5,500 and graduate students $8,000 a year. Additionally, how much you can borrow is based on your financial need, but even at the maximum, $5,500 isn’t going to cover a year of attendance at a Minnesota university.
As previously noted, the SELF Loan only allows for the standard or extended repayment plans. Federal loans offer several more options, many of which are based on your income so you can tailor your bills to your income and not the other way around. Additional plans include:
- Income-Contingent Repayment Plan
- Income-Sensitive Repayment Plan
- Graduated Repayment Plan
- Income-Based Repayment Plan
- Pay-as-You-Earn Plan
Again, SELF Loans do not permit deferment, but that and forbearance are options for federal loan borrowers. Deferment postpones payments on both the principal balance and interest while forbearance only does so for the principal for no more than a year and generally requires payments on interest in the meantime. As of June 2014, the Huffington Post reported 51% of students who had reached their repayment period were unable to make such payments, with 18% being in default, another 18% in deferment, 15% in forbearance, and 1% being cleared through bankruptcy and/or disability. Being cleared through bankruptcy or disability is highly uncommon, and forgiveness or cancellation of loans only happens for a small percentage who meet qualifying rules, such as working in specified fields for a set number of years in exchange for incremented payments on their loan balance.