Stafford Loans

The most common federal student loans are Stafford Loans. Every few years the terms of these loans (interest rates, etc.) gets revised. Also, keep in mind that there is a maximum that you can borrow per year.

• All Stafford Loans disbursed before July 2006 will have variable interest rates. According to Ms. Eriksdotter this means the interest rate is “reset annually by the government every July 1 based on the 91-day Treasury bill yield from the last auction in May, plus a margin of interest set by federal regulation.” Translation: the interest rate on these loans will change every July 1. The interest rates on these loans will always be variable, unless they are consolidated. Even as student loans disbursed later have different fixed interest rates, BE AWARE, whatever those terms were on the date that YOUR loan was disbursed WILL NOT change…

• Stafford Loans disbursed between July 2006 and June 2008 will have a fixed rate of 6.8%. This applies to both subsidized and unsubsidized Stafford Loans. For unsubsidized Stafford Loans this interest rate will not change for the next several years.

• For Stafford Loans disbursed on July 1, 2008 the interest rate on subsidized Stafford Loans became 6%, which will go down to 5.6% in July 1, 2009 and continue to decline every July 1 until 2012 when it returns to 6.8%.

Perkins Loans

The Perkins Loan is an option for students with exceptional financial need. It has a lower interest rate than the Stafford Loan, and it combines funds from both the Federal Government and the educational institution you attend (if the school provides for Perkins Loans). The interest rate on these loans is 5%.

PLUS Loan

This option is for parents who want to take out a loan for their child’s education, but keep it in their own name.   A PLUS Loan is also a federal loan, a parent can borrow up to the full cost of education minus any other aid being received such as scholarships or other student loans.  It has a fixed interest rate of 8.5%.

Private Loans

Private loans make up for whatever costs federal loans can’t cover. Most have a variable interest rate which changes yearly or quarterly and some do not offer the same repayment plans as federal student loans. They are not capped at any maximum amount that you can borrow and the interest rates vary.  BE ADVISED! The interests on these loans can get as high as 24.99%! When taking out private student loans make sure to read over your contract carefully and understand what your repayment obligations are and what options you have if you run into economic trouble down the line.

**Fab&Fru Tip: A good credit score can help get you better loan terms. Consider having one of your parents co-sign your loan. Most likely, their higher credit rating will get you a better loan. *If it’s too late for that because you already have taken out your loans, then keep this in mind: as you pay off your loan, your credit score will improve so down the line you may be able to talk to your lender to get a better interest rate!

Smart Option Student Loan

Currently, Sallie Mae is offering a Smart Option Student Loan starting this coming academic year. With this private loan, you are not deferring all of your repayment until after graduation.  Instead, students make interest-only payments while in school which helps them pay off the loan faster and with less interest accruing over the life of the loan.

Grace Period

This is the period of time (usually 6 months to a year) before you need to start repaying your loans. IMPORTANT! Your grace period begins as soon as you drop below half-time enrollment.  This typically does not occur until you graduate, but if you’re graduating early or have enrolled as a part time student, advise your lender, this could mean that the clock may have already started ticking on your grace period. *This happened to a friend of mine who became a part-time student his final semester. A month after graduation he received notice that, not only did he have to start paying off his loans immediately, but he was already late with the first payment! His grace period was over before he even thought it had begun!

**Be on the lookout next week for Part II of our Fab & Fru Student Loan Guide–Paying Back Your Loans. Remember, educating yourself about paying for your education is a crucial part of your college career – before you ever set foot on campus, make sure you have done your homework!

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