To begin our understanding of Student Loans, we will divide this section into three parts each devoted to the three basic types of Loans. The three types of Loans are as follows: Perkins Loans, Subsidized and Unsubsidized Stafford Loans and PLUS Loans. Each of these Loans are explained below. Additionally, once you have learned about these loans, please visit our recommended loan provider at the links below.
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The first loan type to understand is the Perkins Loan. Perkins Loans are loans for both undergraduate and graduate students. These loans are provided by federal funds through your school. Additionally, these loans are low-interest loans at 5%.
The amount of money you can borrow with a Perkins Loan depends on several factors. The first is dependent of when you apply, the second on your needs and last on your school's funding level. However, the limits are as follows: $4,000 a year for undergraduates up to a $20,000 total. For graduate study you can receive $6,000 a year up to a $40,000 maximum including any undergraduate Perkins Loan amounts.
The method in which you are paid will be from your school and will be directly to you in the form of check or credit to your account. These payments usually come twice during the school year and each time you receive a payment the school must notify you in writing. If you choose to cancel your loan, you may do so at this time.
In regards to Perkins Student Loan repayment, this will depend on your student class load. To prevent from having to repay your loan while still in school you must keep your class load at-least half time. Once you graduate or leave school you will have a grace period of nine months before you must begin a repayment plan. If you continue school but are taking less than half time credits, see your financial aid administrator to find out the length of your grace period. On a side note, you may have up to 10 years to repay your Perkins Student Loans.
The last thing to know about Perkins Student Loans is that under certain circumstances there are tax benefits. You should seek a financial advisor to learn more about these possible tax benefits.
Stafford Student Loans
The next Student Loan is the Stafford Loan. There are two types of Staffors loans and it is important you understand the difference. The first is the subsidized Stafford Loan. Basically this loan is given on the basis of financial need and as a result you will not be charged interest on the loan until you begin repayment. The word subsidize refers to the fact the federal governmnet subsidizes the interest during your schooling. The second type of Stafford Loan is the Unsubsidized Stafford Student Loan. Basically, these student loans are not given on the basis of financial need and therefore you will be charged interest on this loan from the time the money is lent through the time the loan is paid in full. You can let the interest accrue during the time you are in school and once you graduate that amount will be capitalized and added to the principle of your original student loan. You will then be charge interest on the new higher loan balance!
As for how much you can borrow with a Stafford Student Loan the following guidelines apply for an undergraduate student who is dependant. A first year student in a program that is at least a complete academic year can get $2,625. After your first year and if your program is at-least a full academic year to go you can get $3,500. After two years and if you have a academic year to go you can get $5,500.
As for an undergraduate student who is independent or one whose parents can not get a PLUS loan these guidelines apply. A first year student in a program that is at least a complete academic year can get $6,625. However, no more than $2,625 can be subsidized. After your first year and if your program is at-least a full academic year to go you can get $7,500. Again no more than $3,500 can be subsidized. After two years and if you have a academic year to go you can get $10,500. Once again, no more that $5,500 can be subsidized.
If your studies will be less than a full academic year the amounts you can borrow will be less. Please consult with your school's financial aid office to learn exact amounts you can borrow.
In most cases, if you are a graduate student you can borrow up to $18,500 each academic year but only $8,500 of the borrowed amount can be in Subsidized Stafford Student Loans.
Other amounts to note are the total outstanding debt you can generally have with Stafford Loans. These amounts are as follows. For a dependent undergraduate student the total is $23,000. For an independent undergraduate student the total is $46,000 and for a graduate student the total amount is $138,500.
For Stafford Loans, usually the money will be disbursed in at-least two installments and will be sent to your school. Funds must first be used to pay for tuition, fees, and room and board. Once these expenses are paid any remainder will be paid to you in check or cash.
As with Perkins Loans the school is required to notify you in writing when they receive funds and make a payment to your account from a Stafford Loan. If you choose you may cancel part or all of your loan at this time.
With regard to interest rates on Stafford Student Loans they are variable. This means the interest rate can change each year going up or down. However, the rate can not exceed 8.25%. The variable rate on these loans is adjusted each year on July 1st and you will be notified of all rate changes while you have the loan.
In addition to the interest on Stafford Loans you will also pay a fee of up to 4% of the loan. This amount will be deducted in equal amounts from each loan disbursement you receive.
Similar to Perkins Student Loans you have a repayment grace period with Stafford Student Loans. This grace period is set at 6 months. This means you will have 6 months after you graduate, leave school, or again drop below the level of half time student before you will have to begin making loan payments.
Also note, there are potential tax benefits with Stafford Student Loans and you should seek advice from a tax specialist to learn more.
PLUS Student Loans
A PLUS Student Loan differs from the loans explained above in one major way. These loans are not made to the student. Instead these loans are made to the parents of the student and can only be made if the student is dependent and an undergraduate enrolled in school at-least half time. Furthermore, these loans require the parent to have a good credit history.
The amount that can be borrowed under the PLUS Student Loan program is the cost of attendance to your school minus any other financial aid you are receiving. As with Stafford Loans the funds will be applied to tuition, fees and room & board. Any additional funds will be sent to your parents for the use of your educational expenses. Also, as with the other loans the school will notify your parents when funds are applied to your account and your parents can cancel the loan at this time.
The interest rates for PLUS Student Loans are also variable but can not exceed 9%. These loans are adjusted each year on July 1st and your parents will be notified of all rate changes throughout the life of the loan. Additionally, interest is charge on the loan from the first disbursement to the time the loan is paid off. Also, as with the Stafford Student Loans, a fee of up to 4% is charge for taking a PLUS Loan. This amount is deducted evenly from each loan disbursement.
Unlike the Perkins and Stafford Loans repayment of PLUS Student Loans is different. Generally, these loans are repaid starting 60 days after the final loan disbursement for the period of enrollment you borrowed. Meaning your parents will be making principle and interest payments to these loans while you are still attending school.
Finally, as with the other Student Loans, PLUS Student Loans do have tax benefits under certain conditions and you should consult your tax expert for more information on this matter.
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