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Student Loan Basics

by Nessim Sampson

With the rising cost of higher education, getting a student loan is necessary for many people entering college. There are currently many student loan options available, but the most common student loan is the Stafford loan. Eligibility for a Stafford loan requires the following:

• Be enrolled in an academic program.
• Have a High School Diploma or GED.
• Maintain a satisfactory GPA.
• Proof that the loan is for education.
• Proof that other federal aid money is not owed.

There are two types of Stafford loans: Subsidized and Unsubsidized. A subsidized loan is granted based on financial need. Interest will not be charged before you begin repaying your loan or during periods of authorized deferment. The US Government subsidizes the interest during these periods of time. An unsubsidized loan is not awarded on the basis of need and will charge interest from the time the loan is issued and until it is repaid in full.

If the interest is accrued while you are not obligated to repay the loan, it will be capitalized – that is, interest will be added to the principal amount of the loan, and additional interest will be determined on the higher amount. This means the repayment amount increases, and if the interest is repaid, it will save money in the long run.

If a dependant and undergraduate student:
• The annual amount is up to $2,625.00 as a first year student enrolled for a full academic year.
After one year of study and a full year of study remaining:
• The annual amount is $3,500.00 for the remainder of the program including a full academic year
After completing 2 years of study:
• The amount raises to $5,500.00

While Stafford loans offer a large amount of money, they do not cover every expense. Many perspective students are looking into alternative sources for student loans. An alternative student loan (also called a private loan) is used to supplement a federal loan like the Stafford loan. Banks, credit unions, and other private financial institutions all offer alternative student loans, and performing a little research on each will help student find a loan that works for them.
When getting an Alternative student loan, it is important to know a couple facts about the lender, such as:
• Does the school have any information on the lender?
• Would the school recommend the lender?
• How long have they been in business of providing student loans?
• Does the lender offer any special discounts or services?
• Are there any hidden fees?

The primary form needed is the Free Application for Federal Student Aid (FAFSA). This form is also known as the Primary form, and is the only one that the federal government uses to disperse student loan money. In addition to the FAFSA, some schools might require a form specific to that particular school, so it is a good idea to talk to that school’s financial office. On the plus side, each student needs to fill out the FAFSA only one time, as the government will distribute it to every college listed on the application.

The downside about student loans, of course, is that they have to be paid off! A Stafford loan has a grace period of six months after graduation before payments must be made. It is critical to make the payments on time and the full amount, or it could cause a default. Defaulting on a student loan is very bad, and can lead to a bad credit history, garnished wages, or even legal issues! While this sounds scary, there are many institutions that can be found on the Web that can help.

Lastly, here are a few tips that should make the student loan process run smoothly.

• Read all the material on student loans.
• Complete all paperwork on time, and don’t wait until the last minute!
• Any student loan office will help answer questions.
• Make copies of EVERYTHING!
• Make all payments on time and in the full amount.

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