It’s hard to believe that it happened that fast. It seems like yesterday they looked at you with those innocent eyes, looking for the encouragement to take their first steps. Relying on you to feed them and change their wet diapers. Now the time has come to rely on mom and dad again. Except it is a little more expensive than the Huggies; it’s college. If you didn’t get a head start on saving for college with the Coverdell or 529 plan, you probably staring at the checkbook and wondering how you are going to fund 4 years of college (could be more if you are lucky!). If grants do not apply to your situation, then student loans are the next logical step. But with so many choices, how do you know which one to choose? Let’s see if I can help simplify the process.
The first stop is Stafford Loans. These are available to U.S. Citizens who are undergraduate, graduate, or professional program students. You have choices where you can get these type loans such as banks, credit unions, as well as directly from the government by going through the school.
Stafford loans come in two different forms: Subsidized and Unsubsidized. The former does not earn interest or require payments until the student is out of school. The latter begin accumulating interest from the first day but also do not require payment until they are out of school (Half time status still qualifies for deferment). Please note that I just came across a story of a student whose school would not accept Stafford loans. This is extremely rare, but at least be aware that it could happen.
Maximum loan amount differ between dependent and independent status. The ranges vary from $3,500 to $5,500 that one can borrow each year.
As of this July, rates will be 6% for new subsidized Stafford loans. The best part is that rate is scheduled to decline to as low as 3.4% by 2012. For unsubsidized, the rate will stand to be 6.8%. Other factors that will affect rates are if the student makes the payment on time and can even be reduced if they set up an automatic draft from the personal banking account.
If Stafford loans won’t fully fund the cost of college, the next option is Plus loans. Parents of dependent students and independent post-graduate students are eligible for these type of loans. One “plus” item with these loans is that the student can borrow as much as they need for any college expenses minus any support of financial aid. Also, a FAFSA is not required for potential borrowers. A simple credit check with flying colors all but seals the deal.
The new rate on Plus loans is 8.5 percent interest. One key difference with the Plus loans vs. the Stafford is that the borrower must begin paying typically after 60 days of the first loan amount being paid. So if you think you are delaying payment until graduation, do not be surprised when the first bill comes in the mail.
The last category which has been affected the most here lately is Private loans. Sallie Mae is the typical issuer of these unsecured loans and due to the recent credit market, the funding on these loans has greatly diminished.
Amounts and interest rates are clearly tied to your credit score. The terms of the loans are also dependent on your credit as well as the issuer.
There are many choices for these necessary evils. Luckily, there is plenty of information and resources to rely on. Happy college hunting!
Securities offered through LPL Financial, Member FINRA/SIPC