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Paying for College:
» Loans At-A-Glance
Subsidized Federal Stafford Loans
Who can borrow?
Undergraduate or graduate/professional school students enrolled at least half-time in a degree or certificate program.
Eligibility?
- Must be a U.S. citizen or permanent resident alien;
- Must demonstrate financial need; and
- Must first apply for a Pell Grant.
Maximum?
Undergraduate:
- $2,625 for year 1;
- $3,500 for year 2;
- $5,500 per year for years 3, 4, and 5;
- Total of $23,000.
Graduate/professional:
- $8,500 per year;
- Total of $65,500 in undergraduate plus graduate loans.
Minimum?
Usually $250 (may vary by guarantor).
Interest Rate?
- Variable, based on 91-day T-bill plus 1.7%
- Capped at 8.25%
- Recent rate through 6/30/02 is 5.39% for in-school, deferment, and grace periods; 5.99% for repayment.
- Federal government pays interest during enrollment.
Note: Rate is adjusted annually.
Repayment?
Begins six months after student graduates, leaves school, or drops below half-time status.
Term?
Up to 10 years. Term may be extended based on special needs. SelectStep (graduate) and SmartLoan (consolidation) options available.
Fees?
3% origination fee and 1% guarantee fee, deducted from amount of loan.
Savings Benefits?
- Direct Repay Plan: 1/4 percentage point interest rate reduction when you have your payments automatically deducted from your checking or savings account.
- Great Rewards Program: 2-percentage point interest rate reduction when you make your first 48 scheduled monthly payments on time.
Paid how?
Checks copayable to student and school; mailed directly to school.
How to apply?
See your aid administrator or call (800) 831-5626. CollegeCredit lender code: 830310
Unsubsidized Federal Stafford Loans
Who can borrow?
Undergraduate or graduate/professional school students enrolled at least half-time in a degree or certificate program.
Eligibility?
- Must be U.S. citizen or permanent resident alien;
- Must first apply for a Pell Grant and a Subsidized Federal Stafford Loan.
Maximum?
Undergraduate: Maximum depends on student's dependency status and/or whether parents are able to borrow under Federal PLUS Program.
If student is dependent, and parents qualify for a PLUS loan:
- $2,625 for year 1;
- $3,500 for year 2;
- $5,000 per year for years 3, 4, and 5;
- Total $23,000.
If student is independent, or if student is dependent but parents cannot borrow under Federal PLUS:
- $4,000 for years 1 and 2;
- $5,000 per year for years 3, 4, and 5;
- Total $46,000.
Graduate/professional:
- $10,000;
- Total $138,500 in undergraduate plus graduate loans (including both subsidized and unsubsidized).
Minimum?
Usually $250 (may vary by guarantor).
Interest Rate?
- Variable, based on 91-day T-bill plus 1.7%
- Capped at 8.25%
- Recent rate through 6/30/02 is 5.39% for in-school, deferment, and grace periods; 5.99% for repayment.
Repayment?
Begin monthly or quarterly payments of interest when loan is disbursed, or capitalize interest until loan goes into repayment six months after student graduates, leaves school, or drops below half-time status.
Term?
Up to 10 years. Term may be extended based on special needs. SelectStep graduated and SmartLoan consolidation options available.
Fees?
3% origination fee and 1% guarantee fee, deducted from amount of loan.
Savings Benefits?
- Direct Repay Plan: 1/4 percentage point interest rate reduction when you have your payments automatically deducted from your checking or savings account.
- Great Rewards Program: 2 percentage point interest rate reduction when you make your first 48 scheduled monthly payments on time.
Paid how?
Checks copayable to student and school; mailed directly to school.
How to apply?
See your aid administrator or call (800) 831-5626. CollegeCredit lender code 830310.
Signature Loans
Who can borrow?
Undergraduate or graduate students.A co-borrower is required for first-year students, foreign students who have no credit history, and students who have a low credit score.
Eligibility?
Must attend an eligible four- or five-year college at least half-time.
Maximum?
Total cost of education minus financial aid received.
Aggregate = $100,000.
Interest Rate?
Excellent rating: Prime + .5%
Good rating: Prime + 1%
Fair rating: Prime + 2%
Variable interest rate adjusted quarterly.
Repayment?
After six-month grace period following graduation or less than half-time attendance.
Term?
15-25 years.
Supplemental fees?
Excellent Credit Rating: 0 with Co-Borrower, 3% without Co-Borrower
Good Credit Rating: 0 with Co-Borrower, up to 6% without Co-Borrower
Fair Credit Rating: 4-6% with Co-Borrower, up to 6% without Co-Borrower
Savings Benefits
- Direct Repay Plan: 1/4 percentage point interest rate reduction when you have your payments automatically deducted from your checking or savings account.
- Signature Student Rewards: 1/2 percentage point interest rate reduction when you make your first 48 Signature Student Loan payments on time.
Paid how?
Paid directly to the school each term.
How to apply?
Call (800) 831-5626 for information package and application.
Federal PLUS Loans
Who can borrow?
Parents of dependent undergraduate students enrolled at least half-time in a degree or certificate program.
Eligibility?
- Must be U.S. Citizen or permanent resident alien;
- Must demonstrate good credit.
Maximum?
Total cost of education (tuition, fees, housing, etc.) minus the total of any financial aid awarded, including a subsidized Federal Stafford Loan. No dollar limit.
Minimum?
Usually $250 (may vary by guarantor).
Interest Rate?
- Variable, based on 91-day T-bill plus 3.10%
- Capped at 9%
- Recent rate through 6/30/02 is 6.79%
Note: Interest rate changes annually.
Repayment?
Begin monthly or quarterly payments of principal and interest within 60 days of loan disbursement, or make monthly or quarterly interest-only payments and defer repayment of principal until student graduates, leaves school, or drops below half-time status.
Term?
Up to 10 years. Term may be extended based on special needs.
Fees?
3% origination fee and 1% guarantee fee, deducted from amount of loan.
Savings Benefits?
Direct Repay Plan: 1/4 percentage point interest rate reduction when you have your payments automatically deducted from your checking or savings account.
Paid how?
Check copayable to student and school; mailed directly to school.
How to apply?
See your aid administrator or call (800) 831-5626. CollegeCredit lender code: 830310.
What To Do Before You Borrow
Money Saving Tips
It's easy to rush through the loan process, just to get it over with. But if you take a minute and consider the following points, you might save yourself some money in the long run.
Avoid falling into the "loan trap"
Because need-based loans are easy to apply for and don't require payments while you're in school, it's tempting to borrow up to the maximum amount -- even if it is more than you can afford to repay.
Ask yourself how much loan you actually need
You don't have to borrow the entire amount shown in your award letter.
Consider options that will reduce your loan
Can you hold down expenses? Can you work more, either in the academic year or during vacations? Are there scholarships for you? If you reduce spending or bring in more money, the amount you have to borrow goes down.
Go for the loan with the best terms
The lower the interest rate, the less expensive the loan -- in other words, the less you'll have to repay.
Starting with least expensive, your loan "batting order" should be:
Student Loans
- Federal Perkins Loans
- Federal Subsidized Stafford or Direct Loans
- Federal Unsubsidized Stafford or Direct Loans
- Alternative Loans
Some students may have access to a special loan source (like the Air Force Aid Society) with terms comparable to Perkins or subsidized Stafford/Direct loans. It may be worth your time to look into the possibilities. The College Board's online Scholarship Search includes low-interest student loan programs.
Parent loans
- Federal PLUS Loans
- Private Loans (also called alternative loans)
Some colleges offer their own parent loan programs. We recommend that you check with the financial aid office to see if the school offers its own loan program, and if you qualify, before you submit a PLUS loan application.
How Much Should You Borrow?
Experts agree -- only as much as necessary
It's tempting to borrow whatever you're offered or are eligible to borrow. But it's important to think carefully about how much you really need, and to consider other options.
Ask yourself how much loan you really need
You don't necessarily have to borrow the entire amount shown in your award letter. Even more important, don't plan to borrow as much as you can up to the yearly limits.
Consider options that will reduce your loan
If you reduce spending or bring in more money, the amount you have to borrow goes down.
- Do you have savings you can use?
- Can you get by with less by holding down expenses?
- Can you work more, either in the academic year or during vacations?
- Are there scholarships that you can apply for?
Know how the amount you borrow will affect your repayments
The more you borrow, the higher your monthly repayments will be once you graduate.
Yes, Loans Are Financial Aid
Surprised?
Times have changed. Financial aid used to consist of scholarships to pay for tuition and campus work to cover other expenses. On occasion, a short-term loan was made to pay for an unexpected expense.
Today, the federal government supplies almost unlimited loan funds. As a result, loans are now the largest form of student aid, making up nearly 60 percent of the total awarded each year. Almost every student can expect to receive a loan as part of the aid package.
How are loans financial aid?
Loans are considered aid because of three distinct features:
- Low interest rates
- Delayed repayment
- The in-school interest subsidy
Need-based loans
The two types of financial aid loans are Perkins Loans and Stafford/Direct Loans (subsidized). These loans carry many benefits, such as:
- Low interest rates
If you go to a bank and ask to borrow money, the interest rate will be the prime rate (8.5 percent in spring 2001) plus a few percentage points, depending on your credit rating. For education loans, the interest rates are much lower. The Perkins rate is 5 percent and the Stafford/Direct rate is 7.59 percent. Your cost to repay the loan is less than it would be with traditional, private loans. In addition, a student loan is given without a credit check.
- Delayed repayment
Most loans require the borrower to begin repaying the loan right away. With a need-based student loan, no payments on principal are due until after you leave school.
- In-school interest subsidy
This means the government pays the yearly interest that accrues while you are in school. The savings you receive are substantial. Without this subsidy, either you would need to make interest payments while you were in school, or those payments would be added to the principal of the loan, making it much more expensive to repay.
Loans that aren't considered financial aid
Unlike need-based loans, another group of loans functions to help pay the family share.
These loans:
- usually have higher interest rates
- have no in-school interest subsidy
- may also require immediate repayment of principal
Examples are unsubsidized Direct and Stafford loans, the PLUS parent loan, and alternative loans. While not considered financial aid loans, for many families, they can play an important role in making college affordable, particularly for families that are unable to pay the family share from current income and savings.
Paying for College
It Pays to Save
College Costs
Financial Aid
Receiving Aid
Strategies for Paying the Bill
» Loans At-A-Glance
The White House Initiative gratefully acknowledges collegeboard.com for providing the content found on this page.
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