Those interested in attending a state-funded school more than likely will have the ability to borrow some money to cover their education expenses. Students are taking more responsibility for obtaining their loans, which has traditionally in the past been a role of parents. Before applying for student loans, we recommend that you review the following information.
Free Application for Federal Student Aid (FAFSA)
Apply for aid from the federal government before you seek other sources of funding. To apply, you must first complete a Free Application for Federal Student Aid (FAFSA). You can now submit your FAFSA for the following school year as early as October 1, e.g. for the 2018-2019 school year, you can submit your FAFSA October 1, 2017.
Undergraduate students can sometimes borrow money for education through a federally subsidized or unsubsidized Stafford Loan for anywhere from $5,500 per year for first-year undergraduate students up to $12,500 per year for third-year and beyond undergraduate students; this amount depends on year in school, whether you are a dependent under your parents, and your financial need. Graduate and professional students can borrow up to $20,500 per year (unsubsidized only).
Aggregate loan limits are $31,000 for undergraduate dependent students, $57,500 for independent undergraduate students, and $138,500 for graduate or professional students.
Eligibility for the Stafford loan is not determined by credit. Stafford loans for 2017-2018 academic year have a low annual fixed interest rate of 4.45% for undergraduate subsidized and unsubsidized loans and 6% for graduate or professional unsubsidized loan. There is also a small loan fee of 1.069% (Oct 1, 2016-2017) and 1.066% (Oct 1, 2017-2018), which is a percentage of the loan amount and is deducted from each loan disbursement.
Individuals without the means to attend college and who experience exceptional financial need can qualify for Perkins Loans, which are low-interest-rate loans.
As an undergraduate, you may be eligible to receive up to $5,500 per year for a total borrowing amount of $27,500. As a graduate student, you may be eligible to borrow $8,000 a year for a total borrowing amount of $60,000 (includes any amounts borrowed during undergraduate years). The Perkin’s loan has an interest rate of 5% and unfortunately is not available at all schools. Schools are the lenders, so you will apply for a Perkin’s loan through the school and if approved, you will make your loan payments to the school or your school’s loan provider.
If government subsidized loans are not enough, you may be able to borrow money privately from a bank. However, you will likely be charged a higher interest rate than a government loan. This rate could also be raised over time if your contract does not lock your interest rate for the duration of the loan term. These private loans are often harder to obtain. Many banks will only provide loans to people with credit scores in the 700’s or higher. If a student does not have a high credit score, banks will often require a cosigner.
Loans for Parents
If your parents are considering getting a loan to help fund your education or if you are a parent who is considering signing on a loan to help fund your child’s education, be sure to get as much information as you can about all of the public and private loan options that are available as well as the interest rates and payment plans that they come with.
Parents who obtain government-sponsored loans for their children are often charged higher rates of interest. Some of these loans are known as PLUS loans, and parents deciding to finance their children’s education this way should expect to repay the loan with an annual interest rate of 7% (loan disbursed on or after July 1, 2017 and before July 1, 2018).
The federal government also provides parents with other options and incentives if parents repay loans utilizing automatic monthly electronic deduction payments. Parents utilizing this option can repay loans with a rate as low as 7%.
Banks and Private Lenders
Parents can also obtain private student loans from banks to fund their children’s education. However, as with students obtaining private loans in their names, these loans are affixed with high-interest rates that can increase in time.
Parents who do not qualify for PLUS loans may be able to obtain loans from non-profit organizations. Likewise, many colleges provide loans to parents with low-incomes.
Home Equity Loans
If you have equity in your home, and can obtain a home equity loan at a reasonable rate, this is an option you can consider, especially if the rate you are offered is lower than rates for PLUS or private loans.