loans for college understanding the different types of loans @2014-15 get in 2 college, llc

Loans for College

Understanding the Different Types of Loans

@2014-15 Get in 2 College, LLC

Two Major Types of Loans

• Non-federal Loans (Private, other sources)– Not based on need– Not government guaranteed– Terms controlled by lender– Interest rates may vary and fluctuate – Most must start repayment immediately

• Federal Education Loans (Federal Government)- Starts with the completion of a FAFSA form- Perkins loans – need based- Stafford loans – two types, one based on need and one not- PLUS loans – for parents, not need based- Fixed interest rates and sometimes interest and repayment deferred- Some subsidized (government pays interest while student in school)


Federal Loans

• Federal loans are one of the Title IV programs

Title IV refers to a section of the federal Higher Education Act of 1965, as amended, which authorizes the vast majority of federal student financial assistance programs.

• Federal loans are “guaranteed”Federal loans are loans that are guaranteed by the federal government. This means that if the student (or other borrower) defaults on the loan (fails to pay it back), the government will reimburse the lender.

• Federal loans are a good dealThey generally have lower interest rates and better terms that other loans.

• Some loans are subsidized Means that the government pays the interest while the student is in school.

• There are 3 types of federal loans@2014-15 Get in 2 College, LLC

Perkins Loans

• Awarded based on high need level• Currently fixed 5% interest• Repaid starting 9 months after student leaves school

or reduces enrollment to less than half time• Limited to $5500 per year and $27,500 total cap• Controlled by financial aid office at the college• Formerly referred to as National Direct Student

Loans (NDSL)• No loan fee


Stafford Loans

• Two types of Stafford Loans:

– Subsidized• Based on need• No interest until 6 months after student leaves school

– Unsubsidized• Not based on need• Any student eligible if FAFSA completed• Can defer payment of interest


PLUS Loans

PLUS stands for Parent Loan for Undergraduate Students

– Loans are for parents (and graduate students)– Not based on need – income is not a factor– Approved based on credit rating– Fixed interest rate up to 8.5% – Loans may extend up to ten years– No maximum loan amount but schools can use discretion– Loan fees up to 4%, subtracted from the loan amount– A special form is used to apply (see www.studentaid.ed.gov)– Must be US citizen (or qualified non-citizen) – Loan must be for educational purposes


Applying for a Federal Loan

• The first step is the FAFSA or Free Application for Student Aid

• The FAFSA must be re-filed annually• You can file on line http://www.fafsa.ed.gov• State and school deadlines for the FAFSA vary, but file as early

as possible – around January 1 of the year(s) the student will attend

• You will need Social Security #, Drivers License #, current tax return information, bank and investment statements. (ideally, have your taxes already completed)

• You can sign electronically if you have a PIN

Visit www.pin.ed.gov to obtain a PIN (one time only)@2014-15 Get in 2 College, LLC

Promissory Notes

• Loans generally require the signing of a promissory note (PN) prior to disbursement of the funds.

• A PN is a contract between you and the lender• When you sign a PN, you are agreeing to the terms

and conditions it contains: rates, terms, fees, penalties etc.

• Some federal loans use a Master Promissory Note (MPN) which you may be able to sign once for all your loan activity over a 10 year period. It can be completed on line.

• Always keep a copy of your PN or MPN@2014-15 Get in 2 College, LLC

Non-Federal Loans

• Not guaranteed by the government• Come from other sources• Also called “private” or “alternative” loans• Not based on need• Usually less favorable terms• Payback & interest generally starts immediately• Interest rates generally higher and can fluctuate• Lender controls all terms, rates, fees etc.• Students may be able to use a cosigner


Finding Private Lenders

• Banks or credit unions• You college might offer loans themselves• Lenders recommended by college aid office• State resources – search for your state’s Higher

Education Commission and look for aid• Sallie Mae offers private education loans• Parents could consider a home equity loan• Shop around for the best rates, fees and terms!


What is a Cosigner?

What is a cosigner?

A cosigner is another person who takes responsibility for the repayment of the loan. They guarantee the debt if the primary borrower fails to pay. As such, this is a large responsibility.

Why use a cosigner?

Many private loans are based on credit history. If you have none, or a history that isn’t favorable, a cosigner can make the loan possible and/or even help you get a better deal. (rates, fees, terms)


Final Summary of Loan Advice

• File a FAFSA – it can’t hurt and doesn’t obligate you to accept any aid whatsoever.

• If you are offered a federal loan, strongly consider taking it. They are almost always more attractive.

• If you need other non-federal loan(s), shop carefully and compare rates, fees, and terms before committing.

• Before accepting any loan, be sure you understand the terms and obligations thoroughly. Ask questions.


loans for college understanding the different types of loans @2014-15 get in 2 college, llc

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