Student Loans : News, Updates and Blog Posts

One question we often receive is how much a student can take out per year in federal Stafford loans. I’ve gone ahead and compiled all that information for you here.

Note that these figures are the totals, including subsidized and unsubsidized Stafford loans. They must also obey the lifetime limit for federal loans:

• Dependent Undergraduate: $31,000
• Independent Undergraduate: $57,500
• Graduate/Professional: $138,500
• Medical: $224,000

Borrowing Limits

Dependent Undergraduate

• $5,500 – First-year Students
• $6,500 – Second to third-year students
• $7,500 – Third-year or later students

Independent Undergraduate

• $9,500 – First-year Students
• $10,500 – Second to third-year students
• $12,500 – Third-year or later students

Graduate / Professional Students

• $20,500 / year

If you have any questions about these numbers, head over to our Financial Aid Forum, and make a post. We are really good about answering questions within a day or so.

Attention all graduate students: if you have not already filed your FAFSA for the upcoming school year, start it ASAP! No matter if you are starting a brand new degree program, or working toward finishing an existing one, your FAFSA is the first thing most schools look at when deciding your financial aid.

The deadlines for most schools are here now, and every day you wait to complete the form, the greater the chance that need-based aid from your school could shrink. It’s vital to keep in mind that many financial aid departments will not even starting putting your award package together until they receive their report from the government based on your FAFSA. This obviously doesn’t apply to merit-based scholarships (like the ones you can earn for having a good GPA or being part of a special honor society), but anything else will likely need your FAFSA information.

If you need any help filling out the form, check out our Financial Aid Forum and post a question. Between our dedicated group of knowledgeable users and experts, we usually are able to answer most questions within a day of posting.

The Pell Grant is an excellent award set up for financially needy students to help afford the cost of college. It is maintained by the federal government, and acts differently than other financial aid offerings.

How does a Pell Grant work?

Pell Grants are based entirely off of the information presented on a student’s Free Application for Federal Student Aid or FAFSA form. They are meant for low-income students, and do not need to be repaid unless the student drops out of their degree program. One additional criteria to qualify for a Pell Grant is that the student must be pursuing his or her first bachelors degree. This means that if you are going back to school for another bachelors or are taking classes casually, you will not qualify for a Pell Grant.

In addition, your school must participate in the Direct Loan or FFEL programs for you to qualify for a Pell Grant. Check with your school’s financial aid department to see if they are approved to receive Pell Grants for their students.

Pell Grant Awards

For the 2010-11 academic year (Fall 2010 to Spring 2011), the maximum you can receive through a Pell Grant award is set at $5,350. As I said before, your individual award is largely based on the information presented in your FAFSA, but also on the total cost of attendance reported by your school. To receive the most you can from the program, you ideally want to show low family income and high cost of attendance at your chosen college.

Because of these very strict requirements, the Pell Grant is typically only seen in the aid reports of very financially-needy students. If you are an independent, low-income student, the chances of receiving one of these awards is much better than if you were reporting the income of family members on your FAFSA as well.

This can be tricky for most students, as you are forced to include your parents’ income on your FAFSA until you are 24 years old. However, if you live apart from your family, don’t have a relationship with them, and support yourself, you can legally emancipate yourself to greatly boost how much need-based financial aid you receive (assuming you are low-income, yourself.) I personally would not recommend this, but if you are in a dire enough situation that you desperately need the financial aid, a legal emancipation will strip away your parents’ ability to report you on their taxes, and therefore lower your income for the purposes of filing your FAFSA and receiving more need-based aid.

First off, if you haven’t filed your FAFSA yet… get on it! Many schools’ deadlines have already arrived for financial aid, and the rest are all due within the next month. Without the information contained in your Student Aid Report (SAR) submitted to your school, they can’t begin to put together your aid package.

OK — PSA aside, let’s talk a little about Stafford loans. If you’ve read my Stafford Loans, in Plain English blog (and I hope you have… it has good stuff in it), you know the basics.

To use an analogy, a Stafford loan is like a pair of designer jeans you happened upon in a discount store. They have a lot of value, and cost much less than if you bought them at their original store (or in the case of loans, applied for a private student loan instead.)

Stafford loans are the most desirable type of loans that you can take out for your education due to their low, fixed interest rates. In contrast, private student loans generally have higher, variable interest rates that fluctuate with the economy and can end up costing you ridiculous amounts of interest. So, if you need to take out a loan… try to make it a Stafford. It will save your money in the long run.

The Parent PLUS Loan, a lending option through the federal government for students, is one of the less understood and often forgotten funding methods for education.

What is a PLUS loan? The Parent PLUS Loan is a lending program designed differently than other federal loans to cover more expenses than Stafford or Perkins loans, up to full cost of attendance. In addition, as the name implies, a parent or legal guardian is the only person that can take out this type of loan. The maximum borrowing amount is determined by the following formula:

Amount You Can Borrow = (Total Cost of Attendance) – (Awarded Federal Need-based Aid)

Essentially, the school tells the government how much it costs to go there (with reasonable margins for books, etc.) and whatever loans or grants you receive from filing your FAFSA are deducted from that total amount. Also, it is important to note that the PLUS loan is not a need-based program, so it is subject to a credit check. A PLUS loan is similar in operation to a private student loan, but has lower fixed interest (in most, but not all cases) and more generous repayment terms.

How does it work? First, there are two potential sources of Parent PLUS loans: the Direct Loan program, and the Federal Family Education Loan Program (FFEL). The major difference between the two are interest rates, fees, and who you pay back. The condensed version of the story is FFEL usually is more expensive for the student than the same product from Direct Loan.

At this point, you’re probably wondering why anyone would want to use FFEL for loans if they end up costing more (I know I did) — the answer is it isn’t a choice. Each college decides whether or not they want to be a Direct Loan or FFEL school, and the difference is often dictated through soft benefits and relationships between the school and lenders. So unfortunately, you don’t really have a choice and must go with what the school offers. That being said, there have been a lot of studies, blogs, and commentary that point toward FFEL lenders as being more forward about educating their borrowers about the real costs of education and doing everything in their power to prevent delinquencies and defaults during repayment.

The last difference between the two programs is to whom you send your checks. Direct Loan is funded and maintained by the US Department of Education, so you are directly borrowing your money from the federal government. FFEL is actually maintained by third-party lenders such as Discover Student Loans, and your money goes to them upon repayment.

What is the benefit of a PLUS Loan? A PLUS Loan can be a valuable method of bridging the gap between federal aid and total cost of attendance. More often than not, your federal award package, based on your FAFSA application, will not be sufficient to entirely cover your school expenses.

What does one cost? FFEL has a higher fixed interest rate of 8.5% for PLUS loans, where Direct Loans are currently set at 7.9% APR. Also, FFEL typically has higher fees than Direct Loans, up to 4% of the total loan amount. Like an unsubsidized Stafford loan, interest begins to capitalize or build right after the funds are sent to your school. You have the option to begin paying it off immediately, or you can postpone for either 2 months from the last disbursement, up to 6 months after the student’s graduation.

The PLUS loan is limited in some ways, because it is restricted to being taken out by a parent or legal guardian. If you are an older student, or just don’t have a solid relationship with your family, the PLUS loan just may not be the right solution. If you still need money for your education, and this type of lending is unobtainable, check out a private student loan, which is a little less restrictive, at the cost of being more expensive in the long run.

One last thing — if you are an undergraduate student, or a parent seeking one, you do not have to file a FAFSA to qualify for a Parent PLUS Loan. It is highly recommended, but not required. However, if you are a graduate student, a FAFSA is required to qualify for a PLUS loan.

ScholarshipPoints Point Code: PLUS2010

Hey guys and gals – this is a friendly reminder that you likely have a week or two left to file your FAFSA to receive maximum aid from both the government and your chosen school. For a more accurate date, head over to your school’s financial aid department either online and/or in person, and ask for the list of financial aid deadlines for this year.

Although the federal deadline for submitting the FAFSA is in the summer, schools require it to be submitted much earlier in the year so they have time to assemble their own financial aid packages and fairly distribute their need-based scholarships and grants.

Check out this blog for more information on the FAFSA that I think you will find very useful. And remember, even if your parents make enough money to disqualify you for need-based federal loans, you still may be awarded an unsubsidized Stafford loan that has much lower fixed interest (6.8%) and generous repayment terms than 99% of the private student loans out in the market.

In the current economy, there are countless cries of foul by students, political activists, and parents about student loan companies. Interest rates tend to be a prime target for speaking out, among other things like repayment terms and the consequences of missing a payment (or two.)

However, I want to take the time to reinforce why private student loans exist in the first place… and why they are extremely helpful if you take the time to read the fine print and plan accordingly.

They close the gap. 9 times out of 10, your financial aid package from your school will not cover your total cost of attendance. Scholarships are an excellent supplement to federal and school-based financial aid, but they are not guaranteed and you often don’t get enough money from them to fully pay for college. So, what happens when you have $5,000-10,000 left on your student account that needs to be paid? A private student loan is meant to cover all the extra costs and expenses that inevitably spring up while in school, and with a creditworthy cosigner, can be fairly reasonable in the long term for repayment.

They are versatile. Can you take out a bit of extra money with a private student loan to pay for food, or to have some spending money for your study abroad? Yes you can. The lenders do have caps for what you can borrow, and your school has to certify the amount as reasonable, but there is great flexibility in what you can use the funds for. Should you use a private loan for these things? Probably not, but then again, not all of us have ample savings in the bank or 20 hours a week to work part-time while in school.

You can return what you don’t use. This may sound obvious, but you don’t HAVE to use all the money you borrow from a private student loan. If you find that you took out too much, you can apply it back to the loan as a payment and release some of the debt from your (and your cosigner’s) credit record. I personally have done this twice because I purposely borrowed an extra $3,000 or so two semesters to help me cover rent in between jobs.

There are different types. Not every private student loan is the same. Each lender has different incentives in place to help you pay back your loans and potentially save on some interest; it is not unheard of to get an interest rate reduction for doing well in school, or for being environmentally friendly and foregoing paper statements in the mail. Check out our private student loan comparison tool to see the specifics for some of the more popular student loan lenders.

ScholarshipPoints Code: XRNTTFQA

As a final note: We at Student Loan Network recommend you consider all financial aid alternatives including grants, scholarships, and federal loans (Stafford, PLUS, and Grad PLUS) prior to applying for private student loans.

Now that it’s FAFSA time, I thought that the second installment of this blog should focus on a piece of federal aid that many students receive as part of their award: the federal Stafford loan. Read on to find answers to questions like: “What is it?”, “What does it do for me?”, and “What is it going to cost me?”

What is a federal Stafford loan? The Stafford loan is a type of financial aid granted from the United States government to students who file a Free Application for Federal Student Aid (FAFSA) and show demonstrated financial need. The Stafford Loan program is an evolution of the Guaranteed Student Loan Program, established in 1965, and was named after a Republican senator from Vermont who was highly honored and respected for his work on higher education reform.

The benefits of a Stafford loan. First of all, a Stafford loan is one of the best types of student loans you can get because they have fixed, relatively low interest rates — often much lower than that of the private student loan industry. Due to the fixed interest (meaning it doesn’t change over the life of the loan), there is no chance of the annual percentage rate (APR) suddenly spiking due to the economy; this should be taken a great measure of financial safety, as many students, mortgage holders, and other loan recipients have had to deal with some crazy interest fluctuations in the past two years as a result of the economic recession. The bottom line though is that the interest that is calculated on this loan will increase at the same rate through your entire repayment period — no sudden jumps of huge amounts of interest to pay off, unless you miss payments or go into default on the loan.

What does a Stafford loan end up costing? To answer this question accurately, you first need to know that Stafford loans come in two flavors: unsubsidized and subsidized. Here is a super quick reference chart for the differences between the two:

Unsubsidized Stafford Loan
• Usually higher interest than subsidized, new loans currently at 6.8% fixed for 2010-2011
• Interest accrues while you are in school, and after you graduate

Subsidized Stafford Loan
• Usually lower interest than unsubsidized, new loans currently at 4.5% fixed for 2010-2011
• Interest does not accrue while you are in school, or during your 6 month grace period after graduation — interest only starts to build once your loan goes into “repayment” status

To sum this information up, you pay less overall with a subsidized Stafford loan than an unsubsidized one over the life of the loan. One other nice thing about this type of federal loan is the fact that it has a generous repayment period and lots of different repayment options that will NOT overwhelm you once you graduate. The same usually cannot be said for a private student loan, which 99% of the time has a much higher interest rate (often variable) and whose lenders generally are much less flexible about repayment options.

ScholarshipPoints Code: STAFFORD2010

Without a doubt, one of the biggest anxieties about going to college or graduate school is the pricetag. Depending on the school, it can go anywhere up to $60,000 a year (including most fees, room & board, etc.), and what is more scary is the fact that those prices grow every year. The practice of taking out private student loans and performing loan consolidations is commonplace now in the higher education industry, alluding to continued growth in school costs and heavier financial burdens on incoming and returning students.

According to CollegeBoard, the popular college prep and testing website, the average tuition growth percentages are as follows for the USA:

• Private four-year schools: +4.4%
• Public four-year schools: +6.5%
• Public two-year schools: +7.3%

There is no denying that this is alarming. Education costs are already sky high as is and if you do the math, an average student in a public four-year program will pay roughly $31,000 in tuition costs alone over the length of their program (not including the other myriad expenses a student encounters while in school.)

As a result to this, online education options have begun to gain more traction — not just because of their flexibility, but also their lower overall cost due to savings on overhead from not having to maintain entire campuses. If you find yourself struggling, they might be an excellent option to advance your education while still allowing you to work and making living pay.

What is being done? At the moment, there is a lot of talk about schools going as far as freezing tuition growth or severely capping the increases. They do understand that the costs are spiraling and it impacts their retention rates, as well as new admissions. In addition, some schools implement tuition freezes as a merit-based “scholarship” to those with an arbitrarily-set GPA or higher. You should consult your college’s financial aid department to see if there is such a program and try to earn it, if you aren’t already.

To open, I’d like to ask a simple question: Have you filed your FAFSA yet? If no, you should know that the FAFSA is one of the most valuable financial aid tools in a student’s arsenal (besides scholarships and grants, which are the best) because it shows the government and your school that you need money for college.

In the eyes of your future school, neglecting to file a FAFSA is equivalent to leaving a gigantic tip on on a small meal – you only do it because you don’t care, or money is no object. Depending on your level of need, there is potential to get a significant portion of your cost of attendance financed at attractive interest rates, and/or qualify for a Pell Grant, which you do not need to pay back. Also, the FAFSA applies to both undergraduate AND graduate students.

So why the urgency? “I read on the Government website that my FAFSA isn’t actually due until June 30, right?” — Technically yes, but the real answer is no. In the case of colleges and universities, the financial aid department of your school will actually set a separate financial aid deadline in order to give themselves enough time to put together everyone’s aid packages.

The bottom line: The longer you wait to file your FAFSA, the less chance you have of receiving an excellent financial aid package from your school. Also, be on the lookout for a separate school-only financial aid form – sometimes they require more than just the FAFSA to evaluate your need; you can contact your financial aid office to ask if there are more forms involved.

One last thing! Don’t forget to send your FAFSA to all the schools you applied to. When you are completing the application, there will be an option toward the end to add the receiving schools by school code… just make sure you get them all in there and you will be A-OK paperwork-wise when your school begins to review financial need.

ScholarshipPoints Redemption Code: FAFSA2K10