What Students and Parents MUST Know about Student Loans

By John Williams
Posted Thursday, February 24, 2005

A student loan helps you get through college. Then you come out into a high-paying career. It's a great investment in your (or your sons/daughters) future.

Student loans generally give you a good deal. You get below-market interest rates, and you get a $2500 federal tax credit on interest paid over any period of time (previously first 60 months only)

It doesn't matter if the student, or parent takes out the loan; tax deduction remains the same.

* Did you know the federal government has a $50 billion student loan program ?

Not surprisingly, the federal government provides the largest percentage of student loans. Other student loans may come direct from colleges, private lenders or state governments.

One of the key advantages to a federal guaranteed loan is exactly that - it's guaranteed. That means you don't need collateral. It also means the terms are kinder than a typical lender might offer. Of course, your educational program has to be approved by the government.

Types of student loans

* Federal Stafford Loan - for undergraduate or graduate students

A popular and cost-effective source of a student loan. Stafford loans provide low-interest, government guaranteed funds.

Stafford Loans come in two types, subsidized or unsubsidized. Whether or not you're eligible for subsidized depends on household income. The school ought to advise on this.

For subsidized, the government covers the interest right up to start of repayment i.e. they pay interest incurred during the course, in deferment and during the grace period before repayment begins. If you qualify for subsidized, it's a great deal

For unsubsidized, the student must pay all interest incurred at all times, though they don't start repaying until after grace period.

* Federal PLUS Loan - for parents of undergraduates

Parent Loan for Undergraduate Students (PLUS) allows parents to take a loan on their Childs behalf. They can contribute to their Childs future, and get a great low- interest loan with continuing future tax relief.

PLUS actually allows parents to borrow the total cost of their child's education, minus any grants or other financial aid awarded. All tuition fees, meals, books, transport etc. can be included in the loan.

This really is a great deal, and has no income or asset requirements. Even poor credit history may be overcome. Repayment is flexible, and can include zero payments for up to 4 years.

Only one drawback to the Federal Stafford and Federal Plus loan - your school must be approved to participate in these programs. If your school isn't approved, then you've got some other options...

* Banks

Many banks offer unsubsidized Stafford loans. You still get the money, which you must have to attend college, but repayment options are more limited. Some deals offer you an interest rate reduction if you make payments on time.

* State Loans

Most states offer guaranteed student loans. Apply direct to Banks, who'll administer the State program. It's usually a more expensive way to borrow than Stafford.

* College Board Extra Credit Loan

Administered by your college. Can be expensive, and best used only in an emergency e.g. your aid is withdrawn.

* Other Loan Sources

A number of other sources may be worth trying if you get a problem with your first choice lenders. Academic Management Services affiliates with approx. 2000 schools. AMS pay your tuition fees if you repay them in less than a year. College Resource Center also has loans available.

If your parent served in the military, then a military loan should be investigated.

College can be the experience of a lifetime. A child starts college as a high school kid, and emerges a full grown adult with high-earning potential…

But he or she needs money to survive and thrive in college. This article looked at the main sources of student loan funding, and those sources should be ideal for most students and their parents.

About the Author
John Williams graduated from college, after taking a student loan to finance his studies.