Educate Yourself about Student Loans for College Expenses

Student loans based on financial need are subsidized. When a student loan is subsidized, you usually don’t have to pay yearly interest while the student for whom the loan was granted is still in college.

Perkins student loans are subsidized, low-interest loans geared for students who demonstrate a high need. The financial aid officer at the school you’ve selected will tell you whether you qualify.

Repayment of Perkins loans can be spread across a ten-year period (or about $53 a month for the maximum loan). Perkins loans can be canceled (or forgiven) whenever a graduate is employed as a full-time teacher in a low-income area, a special education teacher, or a math or science teacher where a shortage of teachers exists.

Unsubsidized loans can have payments that are deferred until after graduation. The advantage of unsubsidized loans is that they’re not need-based, meaning anyone is eligible. The names of some of the unsubsidized loans are

  • Stafford loans: They include reasonably low interest rates that are capped at 8.25 percent. Stafford loans have maximum amounts of $2,625 the first year, $3,500 the second year, and $5,500 the third and fourth years.

    Borrowers can have part or all of their loans subsidized (meaning the government pays the interest while the student is in school). Repayment begins six months after graduation. Graduate/professional students can borrower $18,500 per academic year.

  • Federal PLUS Loans: These loans enable parents who don’t have adverse credit histories to borrow the full cost of an education (less any financial aid) for dependent undergraduate students. Education costs include tuition, room and board, books, transportation, and additional expenses.

    Variable interest rates on PLUS Loans range between 2 percent and 9 percent. Repayment of interest and principal begins 90 days after the loan is fully disbursed to the school. PLUS loans aren’t income sensitive, so your family’s income isn’t a factor when determining eligibility. You also may be able to deduct some of your interest payments from your taxes.

  • Private-education loans for parents: These loans are for parents and are available at banks. They aren’t government backed. If considering this type of loan, you may want to start by checking out Nellie Mae.

    Nellie Mae offers EXCEL private loans with variable rates that are calculated monthly or annually. Annual rates generally amount to the prime rate plus 2 percent, calculated August 1, and the monthly rate is prime plus .75 percent, adjusted at the beginning of every month when needed. You can borrow the full amount of college expenses minus any financial aid the student receives.

Many resources and tools are available online for explaining the details of student and parent loans. Here are a few examples of what you’ll find:

  • CollegeBoard.com supplies an in-depth look at how you can fund your student’s education. In fact, the information is so extensive that you sometimes forget your original question.

  • SmartMoney.com offers a section about college planning, including frequently asked questions about what the different types of student loans are, how much you need to borrow, and how you repay the loan.

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