Student Loans 101

In our increasing competitive and global economy thetiered, with the maximum amount increasing
need for a higher education is more prominent nowdepending on what year in school the student is
than ever before. Even the most basic of jobs nowcurrently in. As long as the student is in school, or in a
requires some type of college degree. Unfortunately,deferment period, the Federal Government pays the
for many the cost of a degree is beyond theirinterest on the subsidized loan. These loans are
financial means. A state University nowadaysservices by participating banks and other financial
averages almost $13,000 per year, with most degreeinstitutions, guaranteed by the government. Interest
seekers requiring at least 4 years of study beforerates on these loans are determined by T-Bill rates
obtaining their degree. Without outside aid of someand are set once a year before disbursement for the
sort the prospect of getting a degree, and the jobupcoming school year begins.
that goes with it, would be far above the means ofUnsubsidized Stafford Loans are not a need-based
many of us. However, there is hope in the form ofaward. The borrower is directly responsible for the
Student Loans that are part of the Federal Financialinterest on the loan beginning with the first date of
Aid program.disbursement. Other than the interest rate, the same
Student loans come in three primary forms: Federalrules and limits that apply to subsidized loans apply to
Perkins Loans, Federal Stafford Loans and Federalunsubsidized loans.
Parent Loans for Students (PLUS). Your financial needFrequently parents are expected to contribute some
and other criteria determine which of these loans youamount towards a child's higher education depending
will qualify for. In addition, there are also so-calledon their financial situation. However, recognizing that
Private Education Loans that are offered bymany families simply cannot afford to make such
numerous banks and other financial organizations thatpayments there is a third type of loan that is geared
are not part of the financial aid process.specifically towards parent's and helping them pay for
The most selective type of loan that is distributed bytheir portion - the Federal Parent Loans for Students
higher education institutions is the Federal Perkins(PLUS). A PLUS loan will cover the entire portion of
Loans. This type of loan is awarded based solely onthe parent's expected contribution and is guaranteed
the basis of financial need and is a low-interest loanby the Federal Government, but is issued by
that is fixed for the entire life of the loan. The loanparticipating financial agencies. With this type of loan
has a maximum duration of 10 years and as long asthere is no income or asset requirements making it
the student is in school they will pay no interest onaccessible to even those families with modest means.
the loan. Each college or University only has a selectThe interest rate is generally lower than most
amount of money set aside for these types of loansstandard loan types (around 6%) and there are a
and as a result they are handed out very selectivelynumber of repayment options available, including plans
after other sources of financial aid have beenfor those with limited incomes and a deferred
exhausted. The minimum loan amount is $4,000 withpayment plan while the child is still in school.
a maximum of $20,000 per year for undergraduates.The bright future that a higher education can bring
The loans themselves are serviced directly by thecan sometimes seem a distant hope for many.
Federal Government.However, with the variety of student loan programs
Federal Stafford Loans are the most common typeavailable out there today even the most modest of
of loans awarded to students and come in twofamilies can help their child get the education they
varieties, subsidized and unsubsidized. Subsidized loansneed to get ahead in today's world.
are awarded on the basis of financial need and are© Studentloansdot.