STUDENT LOANS 101

When it comes to investing in your future, it pays to do your homework. Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Here’s a helpful overview of common student loan terms:

Scholarships & Fellowships

Undergraduate scholarships and graduate fellowships are types of aid that help pay for your education. Unlike student loans, you do not have to pay them back. There are many types of scholarships and fellowships awarded each year. Generally, they are given to students who excel at academics, sports or the arts.

Federal Student Loans

Federal student loans are guaranteed by the government and made through the Federal Direct Loan Program. You borrow money directly from the Department of Education at a fixed interest rate. To apply for a direct student loan, you will need to fill out the Free Application for Federal Student Aid (FAFSA). Schools use it to determine your eligibility for federal student loans and other federal, state, and school aid.

You can complete the FAFSA online.

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• Federal PLUS Loan
  The PLUS Loan makes it possible for parents of dependent students to borrow up to the full cost of tuition, less any other aid the student is receiving. The parent must be your biological or adoptive parent. They can also be a step-parent, if the biological or adoptive parent has remarried at the time of application. They will need to meet credit criteria in order to qualify. The PLUS Loan is also available to graduate and professional degree students. Again, to qualify, they will need to meet credit criteria.
• Federal Perkins Loan
  The Federal Perkins Loan is for both undergraduate and graduate students. It is a low-interest loan for those students who are in great financial need. The Perkins Loan is made to your school’s financial aid office, so the school is your lender. Eligibility is determined by using a standard formula that was established by Congress to evaluate the information you report on the FAFSA. Interest does not accrue while you are in school.

Stafford Loans

Most students qualify for the federal Stafford Loan. There is a subsidized and an unsubsidized loan. Your financial need will determine which loan you qualify for. Some students qualify for both. The amount you can borrow is based on which year of study you are in, whether you are a dependent or independent student, and if you are receiving subsidized loans, unsubsidized loans or both. Additionally, the amount depends on whether your parents qualify for the Federal PLUS Loan.

• Subsidized Stafford Loan
  The FAFSA determines who qualifies for the Subsidized Stafford Loan by taking a student’s needs into consideration. This loan does not accrue interest while you are in school.
•  Unsubsidized Stafford Loan
  Like the Subsidized Stafford Loan, you must qualify for the unsubsidized Stafford Loan, again determined by the FAFSA. Since this loan is not based on need, it is available to any student. The interest does accrue while you are in school.

Private Student Loans

Private Student Loans are used to fill the gap between the cost of your education and the amount you receive from the Department of Education, when needed. Usually private lenders offer flexible repayment options. You do need to meet the credit criteria in order to qualify or, when possible, use a cosigner with a higher credit score to improve your chances of receiving a lower interest rate. The interest rate on these loans is variable rather than fixed, which means your interest rate can increase or decrease during the life of the loan.