1. Understanding the Different Types of Loans
7/4/2007
Loans for College
Understanding the Different Types of Loans
@2017 Get in 2 College, LLC

2. Two Major Types of Loans
7/4/2007
Non-federal Loans (Private, other sources)
Not based on need
Not government guaranteed
Terms controlled by lender
Interest rates may vary and fluctuate
Most must start repayment immediately
Federal Education Loans (Federal Government)
Starts with the completion of a FAFSA form
Perkins loans – need based
Stafford loans – two types, one based on need and one not
PLUS loans – for parents, not need based
Fixed interest rates and sometimes interest and repayment deferred
Some subsidized (government pays interest while student in school)
@2017 Get in 2 College, LLC

3. Federal Loans
7/4/2007
Federal loans are one of the Title IV programs
Title IV refers to a section of the federal Higher Education Act of 1965, as amended, which authorizes the vast majority of federal student financial assistance programs.
Federal loans are “guaranteed”
Federal loans are loans that are guaranteed by the federal government. This means that if the student (or other borrower) defaults on the loan (fails to pay it back), the government will reimburse the lender.
Federal loans are a good deal
They generally have lower interest rates and better terms that other loans.
Some federal loans are subsidized
This means that the government pays the interest while the student is in school.
There are 3 types of federal loans…
@2017 Get in 2 College, LLC

4. Need-Based Loans
7/4/2007
Perkins loans and other federal subsidized loans are “need-based”
They are awarded based on high need level
Perkins loans are at a fixed 5% interest rate
Perkins loans are subsidized: repaid starting 9 months after student leaves school or reduces enrollment to less than half time
Other federal subsidized loans are at 4.29%
Limited to $5500 per year and $27,500 total cap
Controlled by financial aid office at the college
Formerly referred to as National Direct Student Loans (NDSL)
No loan fee
@2017 Get in 2 College, LLC

5. Non Need-Based Loans Federal Direct Unsubsidized Loans
7/4/2007
Federal Direct Unsubsidized Loans
These charge interest but allow you to add the interest to the amount you borrow after graduation
These are NOT based on need
Currently the rate is 4.29% fixed
Federal Direct PLUS Loans for Parents and Grad Students
Eligibility is based on credit score, not need
Current interest rate is 6.84%, variable, capped at 10.5%
Application forms are obtained from the college’s financial aid office
Must certify that the loan is solely for education purposes
Parents must be US Citizens or eligible non-citizens
@2017 Get in 2 College, LLC

6. PLUS Loans PLUS stands for Parent Loan for Undergraduate Students
7/4/2007
PLUS stands for Parent Loan for Undergraduate Students
Loans are for parents (and graduate students)
Not based on need – income is not a factor
Approved based on credit rating
Fixed interest rate up to 8.5%
Loans may extend up to ten years
No maximum loan amount but schools can use discretion
Loan fees up to 4%, subtracted from the loan amount
A special form is used to apply (see
Must be US citizen (or qualified non-citizen)
Loan must be for educational purposes
@2017 Get in 2 College, LLC

7. Applying for a Federal Loan
7/4/2007
The first step is the FAFSA or Free Application for Student Aid
The FAFSA must be re-filed annually
You can file on line
State and school deadlines for the FAFSA vary, but file as early as possible – around January 1 of the year(s) the student will attend
You will need Social Security #, Drivers License #, current tax return information, bank and investment statements. (ideally, have your taxes already completed)
You can sign electronically if you have FSA ID
@2017 Get in 2 College, LLC

8. Promissory Notes
7/4/2007
Loans generally require the signing of a promissory note (PN) prior to disbursement of the funds.
A PN is a contract between you and the lender
When you sign a PN, you are agreeing to the terms and conditions it contains: rates, terms, fees, penalties etc.
Some federal loans use a Master Promissory Note (MPN) which you may be able to sign once for all your loan activity over a 10 year period. It can be completed on line.
Always keep a copy of your PN or MPN
@2017 Get in 2 College, LLC

9. Non-Federal Loans Not guaranteed by the government
7/4/2007
Not guaranteed by the government
Come from other sources
Also called “private” or “alternative” loans
Not based on need
Usually less favorable terms
Payback & interest generally starts immediately
Interest rates generally higher and can fluctuate
Lender controls all terms, rates, fees etc.
Students may be able to use a cosigner
@2017 Get in 2 College, LLC

10. Finding Private Lenders
7/4/2007
Banks or credit unions
Your college might offer loans themselves
Lenders recommended by college aid office
State resources – search for your state’s Higher Education Commission and look for aid
Sallie Mae offers private education loans
Parents could consider a home equity loan
Shop around for the best rates, fees and terms!
@2017 Get in 2 College, LLC

11. What is a Cosigner?
7/4/2007
What is a cosigner? A cosigner is another person who takes responsibility for the repayment of the loan. They guarantee the debt if the primary borrower fails to pay. As such, this is a large responsibility. Why use a cosigner? Many private loans are based on credit history. If you have none, or a history that isn’t favorable, a cosigner can make the loan possible and/or even help you get a better deal. (rates, fees, terms)
@2017 Get in 2 College, LLC

12. Final Summary of Loan Advice
7/4/2007
File a FAFSA – it can’t hurt and doesn’t obligate you to accept any aid whatsoever.
If you are offered a federal loan, strongly consider taking it. They are almost always more attractive.
If you need other non-federal loan(s), shop carefully and compare rates, fees, and terms before committing.
Before accepting any loan, be sure you understand the terms and obligations thoroughly. Ask questions.
@2017 Get in 2 College, LLC