Guide to Student Loans
An all-encompassing guide to student loans.
By Elisa Kronish
May 14, 2015
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:
Stafford Loans are low-interest loans, that are made to students under the federal loan program. 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 $5,500 freshman year, $6,500 sophomore year, and $7,500 each remaining year. Independent students can borrow an additional unsubsidized $4,000 the first two years and $5,000 the remaining years. Generally, graduate students can borrow $20,500 per year. The cumulative max for undergrad and grad is $57,500 in subsidized loans and $138,500 in subsidized and unsubsidized combined.
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 the federal government. 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: Submit a FAFSA.
• Maximum you can get: As much as needed to cover education costs not already covered by other financial aid.
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 to apply: Submit the FAFSA.
• Maximum you can get: Undergrads may receive $5,500 per year, totaling not more than $27,500. Graduate students may receive $8,000 per year, for a cumulative (undergrad plus grad school) maximum of $60,000.
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 federal 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.
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.