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Guide to Student Loans

Sometimes, the hardest thing about college or graduate school is paying for it. Scholarships, grants and work-study can help, but to fill the financial aid gap, most students will need to take out loans. There are a number of loan programs available. To pick the best one for you, check out all your options:

Federal Family Education Loan Program (FFEL) vs. Federal Direct Student Loan Program (FDSL)

• FFEL funds are provided by private lenders, such as banks, credit unions and savings and loan institutions. They are guaranteed against default by the federal government and offer students flexible repayment options.
• FDSL funds are provided by the U.S. government directly to you and your parents through your school.

If you’re a student enrolled in school at least half time and meet certain restrictions, you qualify for a FFEL or FDSL loan. Both of these main loan categories cover three types of loans: the Stafford Loan, the Parent Loan for Undergraduate Students (PLUS) and Consolidation Loans.

Stafford Loans Stafford Loans are low-interest loans, that are made to students as part of the two federal loan programs. The idea is to provide loan options for students who might otherwise not be able to take out a loan with a private lender because of an insufficient credit history.

Stafford Loans come in two flavors: subsidized and unsubsidized. With a subsidized loan, the interest doesn’t start adding up until after you leave school – the federal government pays the interest while you’re in school. With an unsubsidized loan, you are responsible for the interest that accrues during your time in college. Unsubsidized loans are open to anyone, regardless of need, but subsidized loans are only offered to students who demonstrate financial need. Many students combine subsidized and unsubsidized loans to reach the maximum amount permitted each year.

• Who is eligible: Dependent or independent undergraduate or graduate students who demonstrate financial need (subsidized) or don’t (unsubsidized).
• How to apply: Submit a FAFSA.
• Maximum you can get: Dependent undergrads can borrow up to $2,625 freshman year, $3,500 sophomore year, and $5,500 each remaining year. Independent students can borrow an additional unsubsidized $4,000 the first two years (on top of the $2,625 the first year and $3,500 the second year) and $5,000 the remaining years (on top of the $5,500 dependent students receive). Generally, graduate students can borrow $18,500 per year, although only $8,500 may be subsidized. The cumulative max for undergrad and grad is $65,500 in subsidized loans and $138,500 in subsidized and unsubsidized combined.

PLUS Loans PLUS Loans are low-interest loans that are made available to parents to cover the cost of their children’s education. Like Stafford Loans, PLUS Loan are administered by both the FFEL and FDSL programs. PLUS loans are the responsibility of parents, not students.

• Who is eligible: Parents of dependent undergraduate students. Borrowers generally must pass a credit check, but if they don’t, they can either prove extenuating circumstances or get a friend or relative to endorse the loan instead.
• How to apply: Parents submit an application, obtained from a private lender or your school.
• Maximum you can get: As much as needed to cover education costs not already covered by other financial aid.

Perkins Loans Perkins Loans are a special class of federal loan intended to provide extra assistance for students with extreme financial need. They are subsidized, long-term, low-interest loans. The loan is made with combined funds from the government and your school.

• Who is eligible: Undergraduate and graduate/professional students who demonstrate exceptional financial need.
• How apply: Submit the FAFSA.
• Maximum you can get: Undergrads may receive $4,000 per year, totaling not more than $20,000. Graduate students may receive $6,000 per year, for a cumulative (undergrad plus grad school) maximum of $40,000. Schools participating in the Expanded Lending Option (ELO) may offer higher loan limits for Perkins Loans.

Consolidation Loans Consolidation Loans combine one or more federal loan into one new Direct Loan from a single lender. A Consolidation Loan often reduces the size of your monthly payment by extending the term of your loan. Additional benefits may include more flexible repayment options and only one monthly bill. However, the payback period is often extended, meaning that you might end up paying more interest over that time.

• Who is eligible: Anyone eligible for FFEL or Direct loans
• How to apply: Complete an application online. You should also check with your lender about how to apply.
• Maximum you can get: Depends on financial need.

Private/Alternative Loans

In addition to the federally sponsored loans, students can borrow money for college from private banks and lenders. These loans can help cover education costs beyond government loan limits.

• Who is eligible: Independent students and parents of dependent students who meet private institution criteria.
• How to apply: Through private lenders.
• Maximum you can get: Depends on cost of education.

Know your options before you sign any loan agreement, and check with your financial aid officer about additional fees and disbursement procedures. Also, remember you must submit a new Free Application for Federal Student Aid (FAFSA) every year.

Student loans can really help out, but make sure you understand the terms of your loan before you sign on. Ease your burden later by understanding your loan program now.

**Please note: This article is meant to provide an overview of the different types of student loan options available for education. However, the student loan landscape is rapidly changing and some information may have changed.