1 Million Dollars

Thursday, January 28, 2010

Federal Student Loans- Overview and Stafford Loans

There are actually many different types of federal loans. 1. Stafford Loan, which this article will cover. 2. PLUS loans for parents and graduate students. 3. Perkins loans. Perkins and PLUS loans will be covered in later articles.

Stafford loans are broken into two categories subsidized and unsubsidized. The difference is that for subsidized loans the government subsidized the student by paying the interest until the student stop going to school at least part time. With the unsubsidized loan the student must pay the interest accrued during school. Therefore subsidized loans, if you can get them, are a better deal than unsubsidized loans. Even if this is not enough to convice you subsidized loans have an interest rate of 5.6% this year for undergraduates vs 6.8% for unsubsidized loans or subsidized loans for graduate students.

Therefore why would someone get a unsubsidized loan? Mostly because anyone who fills out a fafsa (free application for federal student aid) can get one. This means that no first time student should be unable to get this aid. Or maybe the aid one gets is not enough to pay for the expenses.

This chart shows how large a loan a student may potentially get and how much may be subsidized.

Dependent student Independent student
1st-year undergraduate $5,500 (maximum $3,500 subsidized) $9,500 ($3,500)
2nd-year undergraduate $6,500 ($4,500) $10,500 ($4,500)
3rd- and 4th-year undergraduate $7,500 ($5,500) $12,500 ($5,500)
Graduate/professional NA (All graduate and professional students are considered independent.) $20,500 ($8,500)

If a student is getting aid from the university or college in the form of a tuition waver or scholarship, the amount of student loan aid can be decreased. Thankfully the unsubsidized loan aid will be decreased before the subsidized loan aid.

This is in reverse if the student or parent makes additional income. It is always better for a student to get a scholarship or grant than a job off campus. Later articles will cover working on campus and why that is better than a job off campus.

Thursday, January 21, 2010

Student Loans-Overview and Private

Most students will end up taking out loans for school. But it is hard to know what loans to take and which to avoid. Student loans are broken into two basic categories federal and private. Federal student loans are backed by the federal government whereas private student loans are not consider to be back by the government. This article will cover private student loans and future articles will cover the different types of federal student loans.

Private loans are the WORSE type of loan to get. The consumer aka the student and parent if he or she cosigned have less protection that they would with a credit card and often the rate can be worse than a credit card. I once tried to see about getting a private student loan and called up a company that had sent me an offer. They were unable to give me an approximation of my rate unless I applied, even when told my credit score was over 760. The best approximation they could give me was 6-25%. Given that my credit card from my credit union had a fixed rate of 9.9, I was not very impressed.

With the credit card regulations in play private student loans are an even worse deal, than credit cards. There are no regulations on how they change your rate and student loans, even private ones, cannot be discharged by bankruptcy. So basically private student loan companies hold all the cards and have no reason to work with you.

Unfortunately the new credit card regulations also limit the ability of someone under 21 to get a credit card, unless their parents cosign or they have "sufficient" income, however no one has defined sufficient to me or anyone else.

If one still feel that he or she must get a private student loan, most credit card companies or banks offer them, however because of the credit crunch many of these companies are beginning to stop offering them.