STUDENT LOANS 101What every student and parent needs to know about funding higher education.
AVERAGE YEARLY COST: TUITION, FEES, ROOM AND BOARD
(in current dollars)
1983 — Public Institution: $3,433 2013 — Public Institution: $18,110
1983 — Private Institution: $7,7592013 — Private Institution: $36,589
(National Center for Education Statistics)
The Good News Is:You have loan options to ease the financial burden.
STUDENT LOAN OPTIONS: THE BIG PICTURE
There are six (6) types of loans that can be used, some in combination, to whittle down the cost of college tuition and other educational expenses.
1. Direct Subsidized (Stafford) Loans2. Direct Unsubsidized (Stafford) Loans3. Perkins Loans4. PLUS Loans5. State Student Loans6. Private Student Loans
1. DIRECT SUBSIDIZED (STAFFORD) LOANS
• Available for undergraduate students• The U.S. Department of Education
pays some of the interest• Maximum eligibility period is
six (6) years• Maximum loan amount is limited
Pros• Low, fixed interest rate• Flexible repayment options• No credit check to qualify• U.S. Department of Education pays
some loan interest
Cons• Must demonstrate financial need• Available to undergraduates only• Low loan limits — e.g., $5,500 for the
first year• Loan use limited to tuition, books
and housing• Federal filing required
(through a FAFSA application)
2. DIRECT UNSUBSIDIZED (STAFFORD) LOANS
• Available for undergraduate and graduate students
• You are responsible for paying all loan interest
• Maximum eligibility is 3 years• Maximum loan amount is limited
Pros• No requirement to show financial need• Low, fixed interest rate• Payments can be deferred until
after graduation
Cons• You are responsible for all
interest payments• Maximum loan amounts are
limited based on grade level and type of student
3. PERKINS LOANS
• Available for undergraduate and graduate students
• Based on financial need• Loans made by and repaid to
the school• Maximum load amount is limited
Pros• Helps students with exceptional
financial need• Low, fixed interest rate• Available to undergraduate, graduate
and professional students• Available to full-time and part-
time students
Cons• Not all schools participate in the
Federal Perkins Loan Program• Loan amount limited to $5,500 per
year for undergraduates• Loan amount limited to $8,000 per
year for graduate students• Funds limited, so you must apply early
4. PLUS LOANS
• Available for graduate and professional students
• Lender is U.S. Department of Education• Can borrow up to the full cost of
educational expenses• Cannot have an adverse credit history
Pros• Low, fixed interest rate• Can borrow up to the total cost
of education• Available to undergraduates, graduate
students and professional students• Flexible repayment options
Cons• Creditworthiness is a factor• Loan fees are assessed• Parent cannot transfer loan
repayment responsibility to the child
5. STATE STUDENT LOANS
• Useful for supplemental funding• Loan terms vary from state to state
Pros• Helpful for supplementary
financial aid• Some loans offer excellent
repayment terms• Some types of loans are readily
available
Cons• Less flexibility for repayment • Interest rates may be higher
6. PRIVATE STUDENT LOANS
• Useful for supplemental/gap funding• Loan terms vary depending on
the lender
Pros• Loans can cover the total
Cost of Attendance (COA)• Interest rates may be lower,
depending on credit worthiness• Application process easier
Cons• Creditworthiness is a factor• Interest rates usually variable• Borrowers may not be able to
defer repayment
NEXT STEPS
Start investigating your options as soon as possible. The earlier you gather the facts, map out your strategy and start the application process, the more likely you are to obtain the loan(s) you need.
Investigate loan options with:• The school• The school’s state • U.S. Department of Education• Private lenders
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