With gas at $4.00 a gallon, food prices up, and employment down, you may not have a lot of cash to go around right now, especially if you’ve got kids in college. But with the start of the fall semester only a couple months away and the first wave of tuition bills due, where do you go for money for college if the financial aid package your children received just isn’t enough this year?
Even though your kids’ need-based aid has already been awarded, here are three college loans you can look at for any extra financing you need. These loans are awarded without regard to financial need, so you and children can’t be turned down for making too much money or having too many financial assets.
Interest Rate: 6.8% fixed
Fees: 3% origination fee; 1% guarantee fee
Whereas subsidized federal Stafford loans — in which the government will cover the interest while your kids are in school at least half time — are need-based, unsubsidized Stafford loans are awarded without consideration of financial need.
No matter how much you make, your kids can request to borrow up to the max allowable Stafford loan amount, which ranges from $5,500 to $12,500 a year, depending on your kids’ year in school, whether they’re still your financial dependent, and on whether or not you qualify for a federal parent loan.
There’s no credit check required for Stafford student loans; in order to qualify, your kids just have to have filed their 2008–09 FAFSA and meet the general eligibility requirements for federal financial aid.
Although your kids will be responsible for all interest that accrues on these unsubsidized loans, they’ll be able to defer making any principal or interest payments as long as they’re enrolled at least half time.
Subsidized Stafford loans will be included in your kids’ financial aid package. Unsubsidized Staffords, on the other hand, may or may not be listed on the financial aid award letter. Check your award letter to see if you’ve already accepted any unsubsidized Stafford aid. If you haven’t, or if you have, but it’s not the max amount your kids are eligible for, call your kids’ financial aid office and put in a request for additional unsubsidized Stafford aid.
Interest Rate: 8.5% fixed
Fees: 3% origination fee; 1% guarantee fee
Federal PLUS loans are loans you can take out in your own name to help pay your kids’ college expenses. Each year, you can borrow up to the max PLUS loan amount, which is 100 percent of your child’s cost of attendance, less any other financial aid you’ve received.
PLUS loans are credit-based loans, so you’ll have to undergo a credit check that looks at the last five years of your credit history. There’s no minimum credit-score requirement, though, and recently passed legislation, which went into effect on July 1, includes a special provision that allows you to still be considered for a PLUS loan even if you have some derogatory items on your credit report. Under the Ensuring Continued Access to Student Loans Act, lenders may still consider you for a PLUS loan even if you’re up to 180 days delinquent on your mortgage or medical bills, or up to 89 days delinquent on any other debt.
The new legislation also allows you to defer payments on your new PLUS loans while the child for whom you took out the loans is still enrolled in school at least half time. PLUS loans are unsubsidized loans, so keep in mind that even if you’re not required to make any payments, you’re accruing interest on your balance, and that interest will be capitalized and added to your loan principal for you to pay back once your repayment period begins.
To apply for a PLUS loan, contact your children’s financial aid office; they should be able to point you in the right direction.
Interest Rate: usually a variable rate, not fixed, that varies by lender and by borrower credit profile
Fees: fees vary by lender and by borrower credit profile
Private student loans are non-federal credit-based loans that can help your kids pay for school when grants, federal student loans, federal parent loans, and other financial aid aren’t enough to cover all their education-related expenses.
Private student loans are typically variable-rate loans that can be subject to higher interest rates and fees than federal student loans, and private loans may not offer the same income-sensitive repayment or hardship payment-deferment options that accompany federal loans. You and your kids should only turn to private loans once you’ve taken advantage of all your low-cost federal financing options.
Your kids will almost always have to apply for a private student loan in their own name, but unless they meet the lender’s income and credit requirements, your kids will need a creditworthy co-signer to qualify.
Even if your kids qualify for a private loan on their own without a co-signer, because borrowers with stronger credit profiles often qualify for lower interest rates and fees than those borrowers with weaker credit, if you have good credit and can co-sign on your kids’ loan, you may be able to help them qualify for a better rate and lower fees. (For more on what’s involved when you co-sign on your children’s student loans, check out our other article this month, “Co-Signing for Their Private Student Loans.”)
Many private loan programs will allow your kids to defer making payments while they’re enrolled in school at least half time, but interest will continue to accrue. Any accrued unpaid interest will be added to the loan balance and capitalized for your kids to pay back once they go into repayment.
Look for private loan lenders online. Shop around, ask questions, and compare interest rates and monthly payments on at least three private student loan programs before you commit to any lender.