Student Loans & Financial Aid info

While included in the term Financial Aid higher education loans differ from scholarships and grants in that they must be paid back.  They come in several varieties in the United States.

Federal student loans are made to students directly.  There are no payments while enrolled in at least half time status.  If a student drops below half time status, the account will go into its six-month grace period.  If the student re-enrolls in at least half time status, the loans will be deferred, but when they drop below half time, again they will not longer have their grace period.  Amounts are quite limited as well.

Federal student loans can also be made to parents.  They can obtain a much higher limit, but payments start immediately.

Private student loans made to students or parents have a higher limit and no payments until after graduation, although interest will start to accrue immediately.  Private loans may be used for any education related expenses such as tuition, room and board, books, computers, and past due balances.  Private loans can also be used to supplement federal student loans, when federal loans, grants and other forms of financial aid are not sufficient to cover the full cost of higher education.

There are two distribution channels for federal student loans, the Federal Direct Student Loans and the Federal Family Education Loans.

Federal Direct Student Loans also known as Direct Loans or FDLP loans are funded from public capital originating with the US Treasury.  FDLP loans are distributed through a channel that begins with the US Treasury Department and from there passes through the US Department of Education.  Then it goes to the college or university and then to the student.

Federal Family Education Loan Program loans also know as FFEL loans or FFELP loans are funded with private capital provided by banking institutions such as banks, savings and loans and credit unions.  Because the FFELP loans use private capital as their source, students who use FFELP loans are able to take advantage of payment options that are similar to those available to customers who take out a home loan or a consumer loan.  Some institutions will allow a discount for automatic payments or a series of on-time payments. In 2005, approximately two-thirds of all federally subsidized student loans were FFELP.

According to the US Department of Education, more than 6,000 colleges, universities, and technical schools participate in FFELP.  This is a representation of about 80% of all schools.  FFELP lending represents 75% of all federal student loan volume.

The maximum amount that any student can borrow is adjusted from time to time as federal policies change.  A study published in the winter of a 1996 edition of the “Journal of Student Financial Aid,” “How Much Student Loan Debt Is Too Much?” suggested that the monthly student debt payment for the average undergraduate should not exceed 8% of total monthly income after graduation.  Some financial aid advisers have referred this as the 8% rule.  Circumstances vary for individuals, so the 8% level is an indicator not a set rule.

“Where do I begin?”  This is the million-dollar question often asked when it comes to beginning the student loan and financial aid process.  I have outlined the steps to applying for financial aid in the order you should complete them.

You have made a great first step by doing some research, but we cannot stress enough that you need to research financial aid in all its forms.  Visit financial aid on the net to learn the basics and become familiar with terms such as FAFSA, Guarantor and many other words and acronyms that you probably will not come across in everyday life.  It is definitely worth your time and effort to learn about the financial aid process now, before you start filling out forms.  It can potentially help you save money as well.

Complete the FAFSA:

Ensure that you or your child has completed the appropriate FAFSA application.  You can find application advice and submission, free, on line at http://www.FAFSAonline.com or the dept. of education site.  To have your FAFSA professionally prepared and files, like a tax preparation service, visit http://www.FAFSAapplication.com.  To receive a federal Student loan, you must fill out a FAFSA application.

Find Scholarships:

A Scholarship is money you do not have to give back.  Scholarships exist at the local and national level, so be sure to look into all your options, including local fundraising groups, your religious group and national scholarship opportunities.  You might consider using a professional scholarship search service for a nominal fee of course.  This service can access you to more than $14 billion in essentially free money.

Stafford Loan:

Once you have completed and received the results from your child’s FAFSA, you will then know the amounts he/she has qualified for.  At this point is when you need to know obtain a Stafford Loan for the additional money amounts that will be needed.  Stafford loans are student loans available through government programs for a low interest rate.

PLUS Loan – Plus Loan for Parents of Undergraduate Students:

After finding out how much federal financial aid your are qualified for your parents can find out if they are qualified to take out a PLUS loan on your behalf.  This can help fill in any gaps in your federal need-based aid.  Remember it is important to file for the Stafford loan first, then the PLUS loan.  You can learn more about both of these loans online.

Still not enough?  Alternative Student Loans:

If your federal student aid report indicates that you do not meet the requirements for federal funding, or it falls short of what you need, consider applying for a private student loan.  Also known as Alternative student loans.  This kind of loan is a credit-based loan you can take out to fund your child’s education.  Check this out on line as well.

Alternative Student Loans for parents of grade K-12 students each offer an easy application process with funding in as little as 5 business days at competitive interest rates, making them great choices for students and families with unmet financial needs.