What Are My College Student Loan Options?

Now, more than ever, there is quite a large array of loan and financial aid options available for both undergraduate and graduate students in need of extra money for school. The primary college student loan options available are: federal Stafford and Perkins loans, private student loans and federal PLUS loans.

Stafford / Perkins Loans

These loans are provided through the Federal Direct Loan Program, a division of the U.S. Department of Education. However, the Perkins loan actually is given to you by your school… so the process can seem a little convoluted at first glance.
To summarize the Stafford loan, there are 2 types: unsubsidized and subsidized. Subsidized Stafford loans are exclusively for students with strong financial need and and unsubsidized Stafford loans are available to all students who file a FAFSA.
Perkins loans are for students with exceptional financial need and are decided by the school’s financial aid department. The money actually comes from the government though, so it technically is a federal student loan.

Private Student Loans

Private loans are also referred to as alternative or supplemental student loans. They are credit-based — meaning you need to have a good credit score or a creditworthy co-signer to get one — and have a variable interest rate. Of all the college student loans, these can theoretically have the highest interest rates, though this totally depends on your credit.
However, private student loans also offer the largest variety in the form of borrower incentives. These can include co-signer release, graduation rewards, APR reductions and more depending on the lender.

PLUS Loans

PLUS loans come in two flavors: Parent PLUS and Graduate PLUS. Parent PLUS loans are only available for parents of undergraduate students and the Graduate PLUS loans are exclusive to graduate students. These loans are NOT transferrable once borrowed, meaning the parent can’t force the student to take on the debt after graduating.
They are useful because they cover up to 100% of your total cost of attendance, while maintaining a fixed interest rate (currently 7.9% in 2010-2011) and several repayment plans.
** Please keep in mind that the Student Loan Network always recommends that you expend your available cash reserves, scholarships and federal student aid intelligently before you consider a private student loan.

Parent PLUS or a Private Student Loan? What should I pick?

If your child received their financial aid award letter and there weren’t enough digits on the page to cover tuition, you are definitely not alone. The cost of college continues to steadily grow every year, but financial aid has not kept the same pace. As a result, the gap between aid and cost continues to grow.
Once your child has exhausted the annual maximum for Stafford loans, the next step is to look at credit-based options to bridge the financial aid gap. Fortunately for you, there are quite a few lenders that all must compete with each other to make money and therefore give you an opportunity to minimize the interest rate on a new loan.
If you’ve read a few posts on this blog, you know the score on Parent PLUS loans, but what about private student loans? There are a few notable differences… and in some cases they can become more attractive than their federal counterpart.
Major Differences:

• Private student loans have variable interest rates (meaning they change with the index they are associated with… most commonly LIBOR or the Prime)
• They come from banks instead of the Department of Education
• Many banks offer special incentives to make a private student loan more worthwhile

At the moment, interest rates are quite low due to the Fed attempting to put the economy back on a growth track out of the recession. This means that the indices are at historical lows and with a creditworthy borrower, you can secure a great interest rate that can be as much as 5% lower than a Parent PLUS loan.
If you want to learn more about some of the incentives that private lenders offer, check out this blog on the Student Loan Network.
The bottom line is just do some research before you take out a loan. In many cases, you can save thousands of dollars in interest if you shop around.

New Student Loan Laws

A good news for past, current or future loan takers with a new amendment to renegotiate your monthly student loan repayment bill to a maximum 15% of your discretionary income.

These new benefits will be affected from 1^st of July. This will regulate the student loan payments for millions of Americans. These benefits were signed into law in 2007 as part of College Cost Reduction and Access Act. They include:

• Low interest rates on need-based (subsidized) federal student loans. From 1^st of July the interest rates on subsidized federal student loans will decrease from 6% to 5.6%. That’s 2^nd from four annual cuts in this interest rate and it will continuously decrease down to 3.4% till 2011.