How to get started
The Free Application for Federal Student Aid (FAFSA) is the basic application form for most student aid programs. This application assesses your wealth and determines the type(s) of financial aid for which you are eligible. The online version of the FAFSA is the quickest and easiest way to fill out the form: all you need is a PIN assigned by the US Department of Education and your financial information.
Keep in mind that since the FAFSA is a government related program, each individual school you are interested in may have different deadlines for financial aid applications. Make sure that you check out the application deadlines for your school(s) of choice.
- Request your PIN at www.pin.ed.gov
- Fill out a FAFSA application at www.fafsa.ed.gov
Federal Loans
Perkins Loan
A Federal Perkins Loan is a low interest rate, need-based loan, meaning that they are only awarded to people who fit a certain financial situation. Currently the interest rate on Perkins Loans is fixed at 5% for a 10 year repayment period. As a result of the government subsidy on this loan, interest does not begin to accrue until the student begins making payments on the principle balance. This loan has a grace period which allows you to defer payments for about 9 months after you graduate from college. Students are automatically considered for this loan when they apply for financial aid.
Stafford Loan
The Stafford Loan is another government subsidized loan, making the interest rate lower than private rates. The current interest rate is fixed at 6.8% for a 10 year repayment period. There is a cap as to how much money a student can borrow through this program. As of July 2007 the limits are as follows: up to $3,500 Freshman, $4,500 Sophomore, $5,500 Junior and Senior, $8,500 Graduate. Students are considered for this type of loan when they apply for financial aid. Once the Stafford Loan is awarded, students must complete a Master Promissory Note (MPN), indicating that they will not default on payments in the future.
Unsubsidized Stafford Loan
The terms and applications of this loan are basically the same as the above Stafford Loan, with the exception that the government will not pay (subsidize) the interest while students are in school. The student will therefore be responsible for any interest accrued after the initial disbursement of the loan.
PLUS Loan (Federal Parent Loans for Undergraduate Students)
The PLUS Loan is designed to help parents fund their children’s education. These loans offer a lower interest rate than a typical private loan and many qualified PLUS parents find they can apply for 100% of their child’s estimated college expenses. College expenses include things such as: tuition and fees, textbooks, room and board, transportation, etc.
Private Loans
There are tons of different private loan lenders, each offering different interest rates, payback periods, etc. The great thing about private loans is that nearly any credit worthy individual can apply. Many of the student loan providers understand that tuition can be expensive while attending school, so most defer payments until after graduation. The amount of private loans a student may take out depends on their educational expenses and whether or not the student applies with a co-signer.
Loan Consolidation
Loan consolidation is appropriate for continuing education students who still have previous school loans or students after they first graduate with loans. Loan consolidation is the process of combining all of one’s previous schools loans into one large loan.
For example: a $10,00 dollar loan from “X” provider could be combined with a $20,000 loan from “Y” provider to create a new $30,000 dollar loan through “Z” provider.
Many students find it very practical to consolidate student debt for a variety of reasons:
- Consolidation makes managing loans easier: only one bill to pay and only one balance to keep track of.
- Typically, consolidation results in one lower monthly payment than the previous multiple loan payments before it.
- Sometimes students can lock in specific, appealing interest rates by consolidating.
A word of caution about consolidation: Sometimes in order to get an affordable monthly payment, loan consolidators will expand the repayment period by a few years. Although this may seem beneficial on a monthly basis, you will end up paying more in total interest in the long-run. The more you can afford to pay monthly, the sooner you will be debt-free and the less interest you will pay in total.
