College Survival Advisor

Nobody wants to borrow their way through college. Still, the painful reality is that many families aren’t able to cover the full cost of college via cash flow, savings and financial aid in this day and age. Even when a college meets 100% of your demonstrated financial assistance, a chunk of that aid package will most likely include some form of loan which will have to be repaid. This section gives a birds-eye view at various loans available. It will also help you understand terms of some loans, select a lender, decide how long to stretch out the payments and provide information on loan consolidation.

Federal Loans as Part of Financial Aid

The top two federal loans for college students are the Stafford Loan and Perkins Loan. These loans are given as part of financial aid awards. The Stafford Loan is the best option, since the government pays the interest while students attend college. Upon graduation, flexible repayment terms can be fixed at a rate as low as 6.8%. The Perkins loan is a good deal as well. There are no origination fees and the interest rate is 5% with a ten-year repayment period.

Free-Standing Federal Loans

Unsubsidized Stafford Loans are not awarded based on financial need. Rather any undergraduate student can take out this unsubsidized loan. The catch here is the interest. Interest on an unsubsidized Stafford Loan will be charged from the time the loan is disbursed to the time the loan is paid in full. These loans have a fixed rate of 6.8% through 2013.

Federal Plus Loans

Unlike the Stafford Loan, the Federal Plus Loan is made to parents and is not part of a financial aid package (PLUS stands for Parent Loans for Undergraduate Students). Under this federal program, parents can borrow up to the full cost of college attendance minus any other financial aid the family is eligible for. For example, a family that qualifies for $15,000 in aid, at a $25,000 per year university, can use a PLUS Loan to help afford all or part of the $10,000 expected family contribution. With this loan, parents are eligible based on credit worthiness, not financial need. To receive the benefits of this loan, you need not have applied for financial aid. PLUS Loan interest rates are fixed for all new PLUS Loans taken out after July 1, 2006 at a rate of 8.5%. There is not a variable rate associated with this academic loan.

The primary benefit of the PLUS Loan is that families can borrow federally guaranteed, low interest funds to help pay for a student’s education without the worry of collateral, financial aid forms, or FAFSA (Free Application for Federal Student Aid) filing time. Loans can be easily applied for online. Obviously, the potential issue with this loan is poor credit.

Private Loans

The Federal loan program, particularly the PLUS Loan program, will hopefully provide you with all the borrowing power your college financial plans require. But, if you’re looking for additional funds–or if you prefer a private lender - a number of not-for-profit organizations make loans to students and parents at rates slightly higher than those issued by the government.

Sallie Mae

In addition to Federal Stafford Loans, Sallie Mae provides a broad range of loans, including private loans as well as its own branded supplemental student loan called the Signature Loan. This loan can be taken out for up to the full cost of college less other financial aid. The interest rates are variable. One convenient aspect of this loan organization is that a student can take out a Signature Loan at the same time as a Stafford Loan and all of his or her borrowed funds will be serviced as one account. Through the years, Sallie Mae has grown to become the nation’s education-lending powerhouse. In addition to the loans forementioned, the organization also provides Continuing Education Loans, Career Training Loans and the K-12 Family Education Loan, to name a few.

Federal Student Loan Consolidation

Legislative cuts made by Congress, as well as the deteriorating credit market have made federal student loan consolidation financially impossible for even powerhouse lenders like Sallie Mae. Still, loan consolidation is available and a wise choice for post-college finances.

Student loan consolidation is a fixed-rate program that refinances all of your existing federal student loans into one account. The key benefit to consolidation is payment relief. When you combine all of your existing loans into one lump consolidated loan, you are able to lengthen your repayment terms from 10 years to up to 30 years, depending on the total sum of your education debt. Upon consolidation, your monthly payment will lower, so you’ll have more funds to meet basic living expenses such as car payments, utilities, and housing expenses. There are no penalties for overpayment, so you can make suitable payments that meet your budget when additional funds are available.

Who Qualifies for Loan Consolidation?

Any student with the following loans, can qualify for Federal Loan Consolidation: Stafford Loan, Perkins Loan, Plus Loan, HEAL Loan and all Federal FFELP and Direct Loans. There are no credit checks, fees or application charges for loan consolidation, and the monthly student loan payment is often slashed by more than 50%. Additional benefits of loan refinancing include the opportunity for an improved credit rating and simplification of one low monthly payment.

What is Loan Deferment?

When you can’t make a payment on your student loan, you may have to consider deferment as an option. In this case, a borrower is entitled to temporarily postpone, or defer, payment of student loans. Before doing so, it is important to understand a few key factors involved with deferment. First, deferment options vary depending on the type of loan you have, and, secondly, deferment does not lock in your interest rates.

With regard to Stafford and Perkins loans, principal and interest may be deferred under the following guidelines:

• If you are still attending school
• If you are unemployed (up to three years)
• If you are studying in a graduate fellowship rehabilitation program for the disabled
• If you are experiencing economic hardship (up to three years)

For private loans, borrowers must submit deferment requests directly to lenders. When dealing directly with your lender, keep in mind that deferment requests must be approved before your payments will be postponed. In the event you fall into financial hardship, and your loans can not be repaid, the best thing to do is communicate, directly, and promptly with your lender. You do not want to fall into a default situation, and your lender does not want this to happen, either. Work, together, to find a solution that works for both parties.