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Check into loans that involve borrowing and repaying money. By
taking a loan you are using your personal credit to make an
investment will result in greater future income—part of which will
be used to repay the loans and the interest. The federal government
subsidizes some educational loan programs and pays the interest as
long as the borrower remains a student in good standing. In other
cases, students are required to pay the interest while still in
college. Repaying the loan principal is deferred until the student
graduates. Sources and types of loans include these:
Federal Perkins Loans
This valuable loan program gives the first priority to needy
undergraduate students. To be eligible, students must establish a
very high need on their student aid application (FAFSA). Because of
the limited funding of the program, the maximum annual loan amount
is $4,000 for undergraduate students and $6,000 for graduate
students. The interest rate on the loan is currently set at 5
percent a year. Interest and principal repayments are deferred until
nine months after a student graduates or attends school on less than
a half-time basis.
Federal Family Educational Loan Programs (FFELP)
There are three different loan programs for FFELP. Two make loans
directly to undergraduate or graduate students—and are known as
Stafford Loans. The federal government subsidizes only one of these
Stafford Loans. The third loan is a program of loans to the parents
of a dependent undergraduate student. The parents are completely
responsible for the amount of the loan, plus interest.
Federal Subsidized Stafford Loan Program
Federally subsidizes Stafford loans start with the (FAFSA). The
amount borrowed is set by the government—currently between $2,625
and $5,500 per year for undergraduates.
Graduate student loans are up to $8,500 per year. To remain
eligible, students must be enrolled on a half- to full-time basis.
The federal government pays the interest on these loans as long as
the student is enrolled. The liability for interest and principal
repayment shifts to the student six months after either graduation
or loss of eligibility due to enrollment status. The funds for these
loans are borrowed and repaid to a bank that participates in the
FFELP program. College or university financial aid offices keep
lists of preferred lenders to give you a start.
Federal Unsubsidized Stafford Loan Program
Similar to the subsidized Stafford Loans, unsubsidized loans have
the differences of not being strictly need-based. You are also
charged interest as a student. Application for the unsubsidized
Stafford Loan program is made by filing a FAFSA; however,
eligibility is not determined by need, but rather by the difference
between the cost of your college choice and the resources of your
student aid package. The college student aid office makes all
calculations. The maximum amount of the loans and interest rates for
the year are the same as those of the subsidized Stafford Loan
program. Interest charges begin the day the loan funds are received.
The bank determines loan payment and repayment provisions. A list of
preferred banks is available from the college student aid office.
Federal Parent Loans for Undergraduate Students
This program gives loans to the parents of undergraduate students
who are dependent on their parents. The parents must complete a PLUS
Loan application form, available from the college financial aid
office. The college financial aid office must certify both the costs
of attending the college of choice and the anticipated financial aid
package to be awarded to the undergraduate. The funds for PLUS loans
are made available by a participating bank. Loan terms, including
repayment provisions and interest rates, are more favorable than
those of other education loans available. Repayment of PLUS loans
begins as soon as the funds are advanced to the borrower. Ask for
more information at the college student aid office.
Private Loans for College Expenses
Consider private loan programs, too. The interest rates and
repayment plans are not as low as the federal loan programs, but are
still worth considering. Private loan programs may be a last resort,
but they are still better than dropping out of college.
If there are no possible lenders in your circle of family or
friends, consider banks and lending agencies that participate in
loan programs with the college you are going to. The student aid
office should be able to provide a list and perhaps even application
forms for private loans from participating lenders. These loans will
ask for paperwork to determine your credit worthiness. They also
will be limited to the difference between your documented cost of
college attendance and the sum of all other sources of income you