With college costs rising at about 6 percent per year, the number of people who can pay the full amount of college tuition up front is decreasing. Scholarships can help lighten the financial load, but most students need to take out loans to finance their education. Loans can either come from private lenders or government sources. For loans from the federal government, students must complete the Free Application For Student Aid, or FAFSA.
Stafford Subsidized Loans
Students who are deemed to have great need based on the FAFSA are offered subsidized loans from the federal government. The government pays the interest that accrues while the student is in school at least half time. As of the 2008-2009 academic year, these loans were limited to $3,500 for the first year, $4,500 for the second year and $5,500 for the last two years.
Unsubsidized Stafford Loans
Unsubsidized Stafford loans are close to the subsidized loans except in terms of interest accrual and limits. Unlike subsidized loans, students are responsible for paying the interest that builds up during their time in college. They can either chose to make interest-only payments on loans during their time in college or they can allow the interest to accumulate, which increases their loan size when they finish college. As of 2008-2009, the total amount of Stafford loans, both subsidized and unsubsidized, is limited to $5,500 during the first year, $6,500 for during second year, and $7,500 during the last two years.
Repayment Options
Repayment for Stafford loans must begin no more than six months after the student either graduates or is no longer attending college at least half time. The standard repayment plan is equal payments over 10 years. A student can request an extended plan, which increases the total repayment time to between 12 and 30 years. A graduated plan starts with smaller payments but increases the payment amounts over time.
PLUS Parent Loans
The federal government makes PLUS loans to parents to help defray the cost of their child's education. These loans have higher interest rates than Stafford loans, and they can be repaid over a period of 10 to 25 years. The amount of these loans is limited to the difference between the estimated cost of attendance and other financial aid the student has received, including Stafford loans.
Private Company Loans
Private lenders are more strict in their borrowing requirements and look at a person's creditworthiness before issuing a loan. Often, having a co-signer such as a parent or relative may decrease the interest rate of the loan. The amount of the loan and repayment schedules are determined by the company.
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