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Loans

Education loans are borrowed money that must be repaid with interest. There are several types of federal education loans: Federal Perkins Loans, Federal Stafford Loans and Federal PLUS loans, as described below. In order to apply for federal loans, you must fill out the Free Application for Federal Student Aid (FAFSA). If you receive a loan, you will need to sign a promissory note binding you to the terms of the loan and stating that you agree to repay your loan.

Many lenders also offer private or alternative loans to students. Private loans are often credit based and require a background check. You should always look into your federal loan options before seeking a private education loan as federal loans typically have more favorable terms, rates and fees.

Federal Perkins Loan

Description: Loan for students with a low fixed interest rate, funded by federal government and administered by your child's college. This loan is awarded based on need to undergrad & graduate students. Each school has a limited amount of funds to award each year.
Rate: 5% fixed
Fees: None
Eligibility: U.S. Citizen/Permanent residents; full/part-time undergrad/grad student; need-based
Amount: Up to $4,000 annually for undergrads; $6,000 for graduates
Repayment Term: Up to 10 years 
Grade Period: 9 months
How to apply: Complete the FAFSA by your school's specified deadline.

Federal Stafford Loan

Description: Loan for students funded and administered the U.S. Dept. of Education. Stafford loans come in two forms: subsidized and unsubsidized. The federal government pays interest on subsidized loans while the student is in school. The student is responsible for all interest charges on unsubsidized Stafford loans.

Rates for 2010/11 academic year: 

Subsidized: 4.5% fixed for undergraduates; 6.8% fixed for graduate students
Unsubsidized: 6.8% fixed
 

Fees: 1% default fee. Fees are deducted from the disbursed amount to the school.
Eligibility: U.S. Citizen/Permanent residents; full/part-time undergrad/grad students. Subsidized: Students who can prove financial need. Unsubsidized: Students who cannot prove financial need.
Annual Limits:  

 
Dependent Students
Independent Students
Year in School
Subsidized Limit
Total Limit
Subsidized Limit
Total Limit
First
$3,500
$5,500
$3,500
$9,500
Second
$4,500
$6,500
$4,500
$10,500
Third– Fifth
$5,500
$7,500
$5,500
$12,500
Grad Students
$8,500
$20,500
$8,500
$20,500

 

Aggregate Limits: 

Student Type
Subsidized Limit
Total Limit
Dependent Undergraduate
$23,000
$31,000
Independent Undergraduate
$23,000
$57,500
Graduate/Professional Student
$65,500
$138,500

 

Repayment Term: Up to 10 years for standard repayment. Graduated, income-sensitive, extended, and income based repayment options also available. Learn more here. In school deferment and forbearance options available.
Grace Period: 6 months
How to apply: Complete the FAFSA by your school's deadline. You will also have to complete an additional application, known as a Master Promissory Note, to accept your award.

Federal PLUS Loan

Description: Loan for parents and graduate students funded and administered by the U.S. Dept. of Education.
Rate: 7.9% fixed
Fees: 4% fee; fees are deducted from the total amount disbursed to the school
Eligibility: U.S. Citizen/permanent resident; parent of full/part-time, parent of dependent undergraduate student; graduate student. A credit check is required.
Amount: Up to the difference between college costs and financial aid received.
Repayment Term: Up to 10 years for a standard repayment term. Loan repayment begins within 60 days after final disbursement. Parents can choose to defer payments until up to 6 months after the student leaves school or drops below half-time status. Interest accrues during this period and can be paid monthly, quarterly, or will be capitalized. Payments can be deferred for graduate students until graduation. Forbearance options are also available.
Minimum payment: $50/month
How to apply: Submit the FAFSA by your school's deadline. You will also need to complete an application, known as a Master Promissory Note, to accept your award.

Private Loan

Description: A private supplemental loan for students available from a national network of lenders with a fixed or variable interest rate based off of Prime or LIBOR plus a mark-up determined by credit rating. Fees and rates vary based on loan program and credit rating.

Eligibility: Typically for students enrolled at least half-time; a credit check is usually required; cosigner is often required
Amount: Loan limits vary by program but not to exceed cost of attendance.
Repayment Term: Repayment terms vary by program.
How to apply: Each lender will have specific procedures for you to follow. Contact your financial aid office to see if they have a list of preferred lenders or research rates and fees at your local bank, credit union or state loan agency.