Student Loans : News, Updates and Blog Posts

This week, many student nationwide are rejoicing in their college decisions, having just sent their deposits to their chosen colleges. Simultaneously, parents everywhere are worrying about how to pay the upcoming tuition bill. If you’re one of these parents, you may be weighing the pros and cons of tapping your 401k for those funds. In this instance, it may be more beneficial to be a little selfish. Here’s what I mean…

Tapping your 401k to pay for college tuition is usually not a good idea. Whether you’re thinking about withdrawing funds, or borrowing against your 401k or IRA, both options end up leaving you with less funds for retirement. Anytime you withdraw funds from your account, the money will be slapped with a hefty 10 percent penalty AND subject to taxes. If you’re looking for a deal, this really isn’t your best option.
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April is financial literacy month and this blog kicks off our financial literacy blog series! In keeping with this spirit, I wanted to break down some common student loan terms so that students and parents can be better informed about the student loan choices they make.

Basic Terms

The following are a few basic loan terms that are imperative to know when taking out a loan for the first time:

Principle – The total amount of the loan when you take it out. Interest accrues on this amount.

Origination fees – These are fees charged by the lender for the “creation” of the loan.

Interest – The amount charged for use of the loan money.

Capitalized interest – An amount of interest that is added to your principle. This means that if you have a loan of 10,000 with $100 in interest, once your interest is capitalized your loan principle becomes $10,100. It’s always best to avoid capitalizing interest because any interest that accrues after is going to be based on this new, higher principle balance, so you will end up paying more over time.

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Public Service Loan Forgiveness is a federal program that rewards public service employees for working in their chosen professions. As you might suspect, the reward is forgiveness of your student loan balance, an offer that many seek but few are able to take advantage of.

The Department of Education has recently made improvements to the PSLF process. While the requirements remain the same, they are more clear, and there’s a variety of new documentation to help get you through the application process.

If you’re not familiar with Public Service Loan Forgiveness here’s a brief overview:

Who is it for?

Employees who have worked for a qualifying public service organization for a minimum of 10 years. This does not mean your specific role at the organization needs to qualify, you simply must work for a qualifying organization.

Qualifying organizations include:

• Federal, state, or local government organizations/agencies
• Non-Profit organizations that are tax-exempt under Section 501©(3) of the IRS guidelines

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For seniors, graduation is quickly approaching! Unfortunately, so are those pesky loan repayments, yikes! Take a few seconds to vote on our most recent poll to let us (and all those soon-to-be-graduates out there) know how much debt you’ll be graduating with, and see where you fall on the scale!

View Student Loan Debt Survey Results summarizing the results (as of May, 15)

If you’re graduating with loans, make sure to look into loan consolidation to help with repayment!  Still in school?  Find a better way to pay search for scholarships or compare student loans.

Deciding on which student loan to apply for can be a headache for both parents and students. With so many aspects to consider, such as repayment plans, interest rates, and loan benefits, deciding on the best loan for you can be both confusing and difficult.

If a student is not eligible for federal loans, or is already taking the maximum, there are other loan options to consider. There is a variety of private student loans to choose from, or you and your parents may consider a Parent PLUS loan. However, these loans have some important differences to be aware of.

The most important aspect when choosing between a parent PLUS loan and a private loan is the borrower. A parent PLUS loan is taken out in the parent’s name and the responsibility legally rests on the parent to repay it. A student and parent can have an agreement where the student pays the loan, but remember, if it were to go into default, it is under the parent’s name not the student’s and is therefore the parent’s responsibility. Private loans, however, will be taken out in the student’s name and all repayment responsibility falls upon the student.

Another important difference to consider is financial disclosure. Private student loans do not require any parent or student information like which you would put on your FAFSA. On the other hand, Parent PLUS Loans require you to file a FAFSA which means you will have to provide financial information.

There are a number of other options to consider when deciding on a loan. Visit StudentLoans.com for more information on this differences between Private Student Loans vs Parent PLUS Loans.

Not everyone is aware of all the loan options available to pay for college. Here are just a few to consider:

1) Federal Stafford Loans – These are federally guaranteed student loans. You can apply for subsidized Stafford loans and the government will pay the interest for you while you are enrolled. This is a great option for students and the most popular loan program available.

2) Parent PLUS Loans – The Parent Loan for Undergraduate Students allows parents to borrow through the federal loan program to pay for their child’s education. The loan is in the parent’s name.

3) Private Student Loans – Private college loans are not sponsored by the government but offer an alternative sources of funds for those that may not qualify for federal aid or who need additional funds. Private school loans are often in the students name with the parent acting as a cosigner.

4) Perkins Loan – Perkins loans are another federal loan for low income students based on eligibility. These loan funds are limited so apply early.

5) Credit Cards – Believe it or not, approximately 30% of students/parents put a portion of the tuition bill on their credit card. While we don’t recommend this option, it is a reality. To find and compare the best student credit cards, visit www.StudentPlatinum.com.

Once you graduate, consider consolidating your student loans to lower your monthly payment. The downside is you will pay more interest over the life of the loan by extending your repayment period. For additional resources, visit: www.studentloans.com, www.collegeloansolutions.com and www.gradloans.com.

Now, more than ever, there is quite a large array of loan and financial aid options available for both undergraduate and graduate students in need of extra money for school. The primary college student loan options available are: federal Stafford and Perkins loans, private student loans and federal PLUS loans.

Stafford / Perkins Loans

These loans are provided through the Federal Direct Loan Program, a division of the U.S. Department of Education. However, the Perkins loan actually is given to you by your school… so the process can seem a little convoluted at first glance.

To summarize the Stafford loan, there are 2 types: unsubsidized and subsidized. Subsidized Stafford loans are exclusively for students with strong financial need and and unsubsidized Stafford loans are available to all students who file a FAFSA.

Perkins loans are for students with exceptional financial need and are decided by the school’s financial aid department. The money actually comes from the government though, so it technically is a federal student loan.

Private Student Loans

Private loans are also referred to as alternative or supplemental student loans. They are credit-based — meaning you need to have a good credit score or a creditworthy co-signer to get one — and have a variable interest rate. Of all the college student loans, these can theoretically have the highest interest rates, though this totally depends on your credit.

However, private student loans also offer the largest variety in the form of borrower incentives. These can include co-signer release, graduation rewards, APR reductions and more depending on the lender.

Compare private student loan lenders and learn more »

PLUS Loans

PLUS loans come in two flavors: Parent PLUS and Graduate PLUS. Parent PLUS loans are only available for parents of undergraduate students and the Graduate PLUS loans are exclusive to graduate students. These loans are NOT transferable once borrowed, meaning the parent can’t force the student to take on the debt after graduating.

They are useful because they cover up to 100% of your total cost of attendance, while maintaining a fixed interest rate (currently 7.9% in 2010-2011) and several repayment plans.

** Please keep in mind that the Student Loan Network always recommends that you expend your available cash reserves, scholarships and federal student aid intelligently before you consider a private student loan.

As a graduate student, the pressure is higher than ever and of course, your classes are likely more expensive than your undergraduate career. The majority of loan products available to you are graduate Stafford loans, graduate PLUS loans and private student loans.

Getting back to the primary question, why pick a graduate PLUS loan?

There are some differing schools of thought on this, but I’ll break down the benefits and differences so you can decide which makes more sense for your financial information.

Graduate PLUS Loans vs. Private Student Loans

Interest Rate

• Grad PLUS = 7.9% fixed
• Private = variable, based on the Prime or LIBOR + X%; can be very low with good credit or a creditworthy cosigner

Repayment Terms

• Grad PLUS = several repayment options including: Standard, Graduated, Income Based Repayment, Income Contingent Repayment and Extended Repayment
• Private = Generally 1 or 2 standard repayment plans; often 15 years

Incentives / Benefits

• Grad PLUS = interest rebate for one year’s worth if you make every payment on time during the first year; 0.25% APR reduction for auto-debit payments
• Private = a variety of different options depending on the lender such as: APR reductions, graduation rewards, co-signer release and more

To learn more about the differences between graduate PLUS loans and private student loans, check out GradLoans.com’s “Comparing Graduate PLUS and Graduate Private Loans” page.

Can’t remember how much of your graduate school tuition will be covered by a Stafford Loan? Want to know when your next PLUS loan disbursement will arrive? You can access all of your federal loan details online through the Department of Education’s National Student Loan Data System (NSLDS) database.

The NSLDS database contains all of the information on your loans when funds have been disbursed. You can find details on  Stafford loan,Perkins loans, Pell grants and Plus loans. Simply log on to http://www.nslds.ed.gov/. To enter the database, you will need your four digit FAFSA pin.

If you are a recent graduate, once your grace period comes to a close, you will be tasked with repaying your federal student loans. While many people opt for standard repayment, there are actually alternative means as well -  if you are eligible.

Graduated repayment- Graduated repayment allows you to make lower payments at the beginning of repayment with the payments gradually increasing over time. Payments are generally put toward interest only in the first few years. Eligibility for a graduated repayment plan varies depending on loan type, interest rate, and outstanding balance.

Income-based repayment - Monthly payments are based on a percentage of your monthly gross income. Typically you can be eligible for income-based repayment if your monthly payments are greater than 10% of your gross income.  Find out if income-based repayment is right for you.

Extended Repayment - Extended Repayment provides eligible Federal Stafford and PLUS borrowers with payment relief through a lengthened repayment term of up to 25 years. To be eligible, you must have a total outstanding balance of eligible student loans that exceeds $30,000.

Have more questions about Stafford loan repayment? Fire away in our Financial Aid forums.