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LEARN ABOUT LOANS

No one wants to take on debt, especially coming straight out of high school, but for some it’s a necessary evil in order to fund their continuing education. For those whose financial aid packages lack the funds to cover all their college costs, they may have to opt to take out a student loan. I know it may sound scary, but the good thing about these types of loan programs is you are allowed to borrow money for college at interest rates way lower than your average loan, and in most cases, you may be able to defer all your interest payments until after you graduate.

QUALIFICATIONS

There are many reasons why a student would want to take out a loan. Typically it’s because they didn’t receive any grants or scholarships, or they didn’t receive ample financial aid to cover all their expenses. No matter the case, there are a variety of loans to choose from, but each has its own set of requirements and terms.

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FEDERAL PERKINS LOAN

A Federal Perkins Loan is available to undergraduate and graduate students who demonstrate financial need and who enroll in participating schools. Not all schools offer Perkins Loans, so be sure to consult with your school’s financial aid office to find out if it’s available. Undergraduate students can borrow up to a total of $27,500 in Perkins Loans with an annual maximum of $5,500. Graduate students and students in professional degree programs can borrow up to a total of $60,000. Repayment of a Perkins Loan is at an interest rate of 5%, with a repayment period of up to 10 years. You will have a grace period of nine months, after you graduate, before you have to start repaying your loan, if you’ve been attending school at least half-time.

You can learn more or apply here.

FEDERAL STAFFORD LOAN

The federal government offers the Stafford loan, which is money loaned through the U.S. Department of Education and it comes it comes in two different iterations; subsidized and unsubsidized. In order for a students to qualify for the subsidized version, they must prove that they are in financial need. Then, upon approval, the interest on the loan is paid by the government while the students are still in school, at least part time. However, repayment of the loan begins six months after the student leaves school or drops below part-time status. With the unsubsidized version of this loan, students don’t have to demonstrate need, but they still need to fill out the FAFSA and they must pay the interest while they are still in school. Yet their is an option to defer payments while still in school. With either version of the loan, the most a student can borrow is a maximum of $20,500 annually. The amount will depend on the student ‘s grade level, status as a dependent or independent student, status as an undergraduate or a graduate student, and the cost of attendance.

You can learn more or apply here.

PARENT PLUS LOAN

The Parent Loan for Undergraduate Students (PLUS), allows parents to borrow money to cover any costs not covered in their student's financial aid package, which can be up to the full cost of attendance, and there is no cumulative limit. Unlike other educations loans, as the name denotes, Parent PLUS loans are the financial responsibility of the parents, not the student. Even if the parent and the student come to an agreement the student will make the payments, if the student fails to make payments on time the parents will be held responsible. PLUS loans require a modest credit check to determine if parents will be able to pay back the loan. An adverse credit history may result in disqualification. Yet, if parents are denied a PLUS loan students becomes eligible for an increased unsubsidized Stafford Loan amount. t Only one parent needs to apply for a PLUS loan, but if one is denied, the other may apply. Yet, if the other is approved, the student is not eligible for an increased Stafford amount.

You can learn more or apply here.

LOAN TERMINOLOGY

Before you complete and sign any loan documents, it’s best that you fully have an understanding to all the terms, conditions, and verbiage you are agreeing to. So, here you will find a list of the most common terms you will run across during your financial aid loan process. Accrued interest: This is the interest that will accumulate on the unpaid balance of your loan. Annual percentage rate (APR): This is the applied to your loan which can fluctuate during the year and term of the loan. Capitalization: This is when any interest accrued is added to the balance on your principal and increases your balance owed. This is charging interest on top of interest. Co-signer: This is the person who agrees to sign a credit agreement with the borrower and is also legally obligated to for loan repayment if the borrower fails to make payments. Cost of education: This is the total cost, each year, for attending school, and this includes, tuition, fees, books, personal expenses, etc. Default: This is when the loan recipient fails to repay the loan according to the terms of the promissory note. Deferment: This is when you postpone your loan repayment for a limited time. Delinquent: This is when your loan payment is late or missed, which can lead to default. Dependent student: This is a student whose financial aid eligibility is determined based on his or her parents' income. Disbursement: This is when your lender releases your borrowed funds. Disclosure statement: This a document which informs you the total cost of your loan, including interest costs and loan fees. Entrance/exit interview: This is a class required for all federal student loan borrowers. The entrance interview takes place before receiving your first loan disbursement and the exit interview happens before you graduate. Expected family contribution (EFC): This is the amount of money that the financial aid officer determines a student's family should be able to pay toward the student's education. Fixed interest rate: This interest rate will remain the same throughout the loans’ entirety. Forbearance: This is when if the borrower needs to reduce or extend their loan payments due to serious hardship. Yet, interest still continues to accrue, which increases the total amount borrowed. Free Application for Federal Student Aid (FAFSA): This is the universal form that must be completed by all students seeking federal financial aid. Grace period: This is the time you have to prepare to start making payments on your student loans after graduating or leaving school. Guarantee fee: This is a 1% default fee that is collected from each disbursement on a federal education loan, which is paid to the designated guarantee agency to cover the costs of insuring the loan. Independent student: This is a student who will either be 24 years old by Dec. 31 of his or her award year; an orphan or ward of the court; a veteran; married,or supports legal dependents other than a spouse; a graduate student, or else designated independent by a financial aid counselor. Interest: This is a percentage of the principal that the lender charges in exchange for lending you money. Origination fee: The Department of Education charges this fee to help cover the costs of providing the loan and it is deducted from your loan amount. Principal: This is the full amount that the lender loans you before interest is tacked on. Promissory note: This is the legally binding contract that is signed between the borrower and lender which provides the terms and conditions under which the borrower agrees to payback the loan. Repayment schedule: This is the calendar the lender follows to make monthly payments until the loan is paid off. Subsidized loan: With this type of loan, the federal government pays the interest while the student remains in school, and during grace and deferment periods. Variable interest rate: This interest rate fluctuates up or down throughout the life of the loan and usually occurs annually. Unsubsidized loan: With this type of loan, the student pays interest on the loan from the date of first disbursement until the loan is paid in full.

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