Student Loans 101
Financing a College Education

Rule #1: Submit your FAFSA form online at www.fafsa.ed.gov
The Free Application for Federal Student Aid (FAFSA) form must be completed to determine how much federal aid you may receive. You and your parents must complete this form since aid is determined by income and asset levels. The deadline is typically May 1st of each year, but be sure to check with your college since they may have an earlier deadline. This will give you the best chance to receive the most federal student aid possible. After you've submitted the FAFSA, a Student Aid Report (SAR) will be issued which states how much you'll receive in federal aid, how much you are eligible for in Stafford Loans, as well as your Expected Family Contribution (EFC).

Rule #2: Be realistic about paying for your college choice
Be realistic about which school's tuition is affordable to your and your parents. All student loans must be repaid after graduation. While two-thirds (65.7%) of all college students graduate with debt, the less debt you have means that more money for living expenses (such as rent, car payment, insurance, etc.) after college will be available.

Rule #3: Investigate all scholarship opportunities to help ease the burden of paying for college.
Scholarships and grants are "free money" for college and do not need to be repaid. Local banks, companies, schools and nonprofit organizations reward students with scholarships for numerous reasons. You might be a great candidate for multiple scholarships, so check with your guidance counselor and do some online research to identify the right scholarship programs for you.

Rule #4: Know what loans are available so you can choose the best one for your needs.
Student loans MUST be repaid. Educate yourself now about what you are borrowing so you know what and how much you'll be repaying before you sign on the dotted line. There are five types of student loans: Stafford loans, Parent PLUS loans, Perkins, Consolidated loans and private loans. These loans are available through the Federal Family Education Loan Program (FFELP) and the Direct Lending Program.

The FFELP Program is provided through private lenders, such as banks, credits unions and savings and loan associations. Direct Loans are through the U.S. Department of Education (DOE). If your college is a "Direct Lending School" then you must obtain your Stafford and Parent PLUS loans through the DOE. Your school will be able to tell you which program you can use.

Stafford Loans
Subsidized and unsubsidized (also known as Non-Subsidized)

The Stafford Loan is the most common student loan. This loan is made in the student's name and is fully the student's repayment responsibility. There are maximum loan amounts for each year of school and that amount increases each year.

Subsidized
The government pays the interest while you're in school, during your grace period and during any deferment periods after repayment has begun. About two thirds of subsidized Stafford loans are awarded to students with family Annual Gross Income (AGI) of under $50,000, a quarter to students with family AGI of $50,000 to $100,000, and a little less than 10% to students with family AGI over $100,000.

Unsubsidized
The borrower is responsible for the interest while attending school. You may choose to either pay the interest monthly or quarterly, while you attend school, or the interest can be "capitalized" until you graduate. Capitalized means that all the interest due on your loan will be added to your outstanding loan balance. All students, regardless of need, are eligible for the unsubsidized Stafford Loan.

Repayment for a Stafford Loan begins six months after the student graduates or drops below half-time enrollment. The standard repayment term is 10 years, although one can get access to alternate repayment terms (extended, graduated and income contingent repayment) by consolidating the loans.

Perkins
The Perkins Loan is awarded to undergraduate and graduate students with exceptional financial need. The amount of Perkins Loan you receive is determined by your school's financial aid office.

Parent Loans

PLUS Loans
The federal Parent Loan for Undergraduate Students (PLUS) allows parents to take out a loan to cover any costs that are not already covered by the student's financial aid package. There is no cumulative limit and Parent PLUS loans are the financial responsibility of the parents, not the student.

Private Loans, also known as Alternative Student Loans
A private loan is granted through a private source (such as a bank) and are usually obtained when the Stafford Loan is not enough to cover the cost of your educational expenses. You will almost always need a co-signor, such as a parent. It's important to shop around for the best private loan for you. The rates and fees charged vary from lender to lender. The fees may be different based on the repayment options you choose. You can typically choose to begin repayment immediately after your loan is disbursed, just pay the interest while you are attending school, or have the interest capitalized to your balance after graduation.

Consolidation Loans
You may consolidate your student loans once you begin repayment. You would typically consolidate to have just one payment, to obtain a fixed interest rate or to spread your payments over a longer period of time. You may not consolidate your private student loans with any FFELP or Direct loans.

You can check with your bank or your college for the annual maximum loan amounts, interest rates and any other incentives that may be offered on student loans.

Rule #5: Create a budget to begin repaying loans on time.
When you write down all of your finances, you are more likely to budget better and conserve money. Banks also offer some price breaks, such as discounted interest rates, if you opt to automatically deduct your loan repayment from your bank account.

Remember: discuss all scholarships, grants and loans with your college's financial aid officer so you don't miss out on any college-funding opportunities!

Editorial provided by Carla McCarthy, Education Loan Manager, Firstrust Bank.