How to Get a Student Loan
How to Get a Student Loan
Article by Jason Knapfel
There are several ways you can fund your children?s higher education. The first and most simple method is that if you happen to have the funds available. If that was all it took, there wouldn?t be much need to go any further. Unfortunately, most of us don?t have the extra capital to pay for college tuition in cash, which is why the following alternatives are what you probably will need to consider.
According to the National Center for Public Policy and Higher Education, college tuition and fees increased 439 percent from 1982 to 2007, while median family income rose just 147 percent. And according to the College Board’s ?Trends in College Pricing 2010? report, there?s been an increase of nearly eight percent from 2009 to 2010 in public school tuition.
These skyrocketing prices are putting a tremendous amount of pressure on families to find ways to pay for a college education. As a result of the increases in tuition, financial aid has more than doubled in the last decade. Let?s look at how you can tap into both public and private sources for aid.
Student Loans
Even though college loans may be more difficult to get in the current stricter credit environment, the federal government has been filling the void left in the private sector. Federal Stafford and PLUS loans are easily available.
Federal student loans have low interest rates. Subsidized loans first disbursed to undergraduate students between July 1, 2011 and June 30, 2012 will be fixed at 3.4 percent.
Federal student loans also provide a variety of deferment options and extended repayment terms.
Let’s take a look at two types of student loans: the Federal Stafford and Federal Perkins Loans. Stafford Loans come in two variations:
- Federal Family Education Loan Program (FFELP) loans are provided by private lenders (banks, credit unions, etc.)
- Federal Direct Student Loan Program (FDSLP) loans are provided by the government directly to students and parents.
The Perkins Loan is the best available. Unfortunately, it?s for students with exceptional financial needs. Depending on your financial situation, you may not qualify. Perkins is a campus-based loan program, with the school acting as the lender using a limited pool of funds provided by the federal government. If you want to apply, get the Free Application for Federal Student Aid (FAFSA), which is available online, at high school guidance offices, and college or university financial aid offices.
Parent Loans
No, not from your parents. This is type of loan is the Parent Loan for Undergraduate Students (PLUS). It allows parents borrow money to cover costs not covered by your financial aid.
A credit check is performed to determine your eligibility for the PLUS loan. The interest rates are currently fixed at 7.9 percent and not based on need. It?s also available to graduate or professional students directly.
Graduate and professional students who are applying for a PLUS loan need to submit the Free Application for Federal Student Aid (FAFSA) and sign a master promissory note. Parents don?t have to submit a FAFSA, but they would then have to sign a master promissory note.
Private Student Loans
Private Student Loans, also referred to as Alternative Student Loans, make up for shortcomings from other loan programs. As the name suggests, private loans are offered by private lenders, with no federal forms to complete. Eligibility may depend on your credit score.
Private education loans tend to cost more than the college loans offered by the federal government, with interest rates and fees based on your credit score. The best private student loans will have interest rates of LIBOR + 2.0% or PRIME – 0.50% with no fees. Lenders who don’t charge fees will often roll the difference into the interest rate.
You are best off to max out your Federal Stafford Loan before obtaining a private education loan.
Jason Knapfel is Content Manager for Webfor, an SEO firm based in the Portland, Oregon metro area. One of the company’s clients is a Portland financial advisor Tim James of Healthy Financial.
Find More Private Education Loans Articles