All student loans fall into two main categories: federal and private loans. Both types can be processed by private financial aid companies. Important: Check deadlines!!!
Federal Loans are guaranteed by the government at relatively low interest rates. Federal loans have strict borrowing limits, so students often need to supplement their federal loans with private loans. The following federal loans are available: Graduate Stafford Loans, Parent PLUS Loans, and Grad PLUS loans.
The most common federal loan for students is the Stafford Loan. It has two variations:
Once students have submitted their FAFSA, they can apply for either type of loan through their financial aid office, or directly through loan companies.
There are two repayment options for the Stafford Loan:
Term Length: Stafford Loan repayment terms are 10 years.
Process for Stafford Loan Applications:
The Parent PLUS loan helps parents pay for the education expenses of their child.
Graduate PLUS Loans The Grad PLUS Loan program, introduced on July 1, 2006, is a new federal loan program created by the federal government for students in graduate and professional school who seek to borrow more money than is available through the Stafford loan program. It allows graduate and professional students to borrow money to cover any cost not already met by the student's financial aid package, including Stafford loans, up to the full cost of attendance. Eligibility for the Grad PLUS loan is not solely determined by the FAFSA. An applicant must fill out a loan application and sign a master promissory note. There is a credit check, and to be eligible the borrower must not have an adverse credit history. Adverse credit history can include being more than 90 days delinquent on any debt including any Title IV debt within the past five years, or being subject to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off.
Funding Limits: Grad PLUS loans have no cumulative limit. Graduate and professional students can borrow up to the full cost of education less any financial aid received. The school must certify the amount of the loan and verify the cost of education and the previously received financial aid. According to federal law, students denied a Grad PLUS loan, unlike the Parent PLUS loan program, are NOT eligible for increased Stafford loan limits.
Student loan repayment plans vary, but there are usually three options: traditional repayment, interest-only repayment, and deferred repayment. In a traditional repayment plan, the borrower begins making payments on the principal and the interest one month after receiving the loan. This option generally has the lowest interest rate. In an interest-only repayment plan, the borrower makes payments only on the interest accruing on the loan while s/he is in school. In a deferred repayment plan, the borrower defers all payments on the loan until after graduation. This option requires no payments while in school, but often has higher rates and/or fees. Also, with a deferred repayment plan, the unpaid interest is added to the principal, increasing monthly payments. This is called capitalization.
With subsidized Stafford loans, the federal government pays the interest on the loan while the student borrower is enrolled in school. These loans are therefore very desirable for students; however, the subsidized Stafford is only available to those who demonstrate need as determined by the government through the Free Application for Federal Student Aid (FAFSA). Also, the amounts that can be borrowed are capped at limits below the average tuition price of American colleges. Parent PLUS loans do not have deferred repayment options; the borrower must begin paying back the loan sixty days after the funds are disbursed. Most interest-only and deferred repayment options include a grace period of six months after graduation before the interest and principal repayment begins.