Applying for Student Loans

Reducing the Cost of School

With the cost of college education rising every year, more students and their families turn to student loans to bridge the gap left when savings and scholarships cannot pay all of the tuition bills. For most young Americans, a student loan is their first encounter with major debt. Federal Perkins Loan The federal government provides colleges and universities with a mechanism to lend money directly to students through the Federal Perkins Loan program. Financial aid directors and admissions counselors usually work together through the application cycle to determine which candidates might be swayed to enroll at their institution with the extra help that these loans provide. Perkins Loans are extended only to full-time students that meet all academic requirements at their college or university. Depending on a number of factors, including the income of a student's family and their collected savings, undergraduates can qualify for up to $4,000 each school year under the Perkins Loan program. The loans cap out at $20,000 during an individual's undergraduate degree program. Graduate students may receive up to $6,000 per year in assistance from their schools, with a lifetime cap of $40,000 in Perkins Loan advances.

When to apply for student loans? Save your money, and ask the financial aid counselor at your prospective college and university about loans available to you.

Students must begin to repay Perkins Loans to their institutions nine months after they graduate, or nine months after they drop below full-time status. Loan recipients can take up to ten years to pay off the loans they accrued during their degree programs, at a fixed interest rate of five percent.

Because schools lend this money directly to enrolled students, the loans are usually transferred internally through a college's bursar's office. If you receive a Perkins Loan, expect to see your loan amount credited in smaller installments, one for each term (semester or quarter).

Unlike personal loans that fluctuate with the prime rate, Perkins Loan recipients enjoy the stability of the same interest rate throughout their repayment period. Graduates can save a significant amount of money by paying off their Perkins Loans early, since there is no pre-payment penalty.

FFEL or Direct Stafford Loan

The subsidized Stafford Loan program benefits students by paying any interest that accrues of qualifying loans while beneficiaries are enrolled in full time degree programs. Because of the way that interest compounds over time, these modest federal subsidies can shave thousands of dollars from interest charges over the life of the loan.

"Stafford loans provide some tax benefits to students as they grow their careers after graduation."

Financial aid counselors elect students to participate in the subsidized loan programs based on financial need. Because most student loan recipients start earning good wages after they graduate, the government stops making interest payments to the lender shortly after graduation. About six months after earning a degree, students must begin making regular monthly installment payments to their lenders.

Unlike Perkins loans, the interest rates on Stafford loans rise and fall with the prime lending rate. Most banks express the rates as "prime plus" a certain percentage. Students can save the most money on their education expenses by paying back the loan principal as quickly as possible.

Stafford loans provide some tax benefits to students as they grow their careers after graduation. Many adults can claim the interest paid on student loan debts, with a maximum of $2,500, as a tax write off.

Students who do not qualify for a subsidized Stafford Loan can still participate in the government's student aid program by accepting an unsubsidized loan. As the name suggests, the unsubsidized loan does not carry the benefit of bonus interest payments from the government during a student's enrollment.

Whether a student qualifies for subsidies or not, he or she must adhere to some government-imposed limits on lending during their academic careers. When parents still claim first year students as dependents on their income tax return, those student can receive a maximum Stafford Loan of $2,625 in the first year, $3,500 in the second year, and $5,500 in subsequent years. Dependent students can incur no more than $23,000 in Stafford Loan debt before graduation.

Independent students can request larger student loans to help pay for an undergraduate degree. First year students can borrow $6,625, second year students can borrow $7,500, and students in their final years of an undergraduate degree program can borrow up to $10,500 per year. During their entire degree programs, working adults may borrow no more than $46,000. Only half of that amount can qualify for federal interest subsidies.

Graduate students can take the most advantage of federal student loan programs, especially since fewer scholarships and grants exist to help pay for advanced degree programs. Graduate students can borrow up to $18,500 each year from guaranteed lenders. Of that amount, only $8,500 can be subsidized. The Stafford Loan program for graduate students caps out at $138,500, including all loans disbursed during a student's undergraduate program.

"PLUS Loans work in an almost identical fashion to Stafford Loans, except the parents act as borrowers instead of the student."

Federal PLUS Loan

PLUS Loans work in an almost identical fashion to Stafford Loans, except the parents act as borrowers instead of the student. Parents receive a check from the lender at the start of each semester. Under the PLUS Loan program, parents may borrow any amount up to the remaining balance of a student's total cost of attendance. Unlike Stafford Loans, parents must begin making payments on PLUS loans immediately, while a child is still attending college.

Applying for Student Loans

Save your money, and ask the financial aid counselor at your prospective college and university for their assistance with any questions. They will be delighted to assist you.

Falling Behind on Student Loan Payments

Worst of all, defaulting on your student loan can exclude you from hiring processes at government bureaus, including schools and law enforcement agencies. Many private employers also reject job applicants with a defaulted student loan on their records, as well.

Fortunately, the Department of Education provides significant relief to student loan recipients who, through no fault of their own, cannot meet their regular monthly payments. By law, you can request up to twenty four months of "forbearance," simply by contacting your lender and completing a simple form. During the forbearance period, you can skip your student loan payments while you work on getting a new job or putting your financial house in order.

Many student loan recipients who wind up in default state that they were too scared or embarrassed to ask for help during hard financial times. In fact, the process is simple and painless. Lenders actually enjoy extending forbearance, since they get to keep charging interest on your remaining balance during the period. And they know that if you default on your loan, government insurance programs will reimburse them for a large portion of their loss.

Therefore, the government requires student loan recipients to repay their obligations over time, no matter what. Student loans can not be discharged in bankruptcy, nor can they be charged off like other forms of unsecured debt. Department of Education officials routinely garnish up to twenty five percent from the wages of defaulted student loan recipients. You can avoid all of those consequences by simply asking for help when you run into trouble.

Student Loan Forgiveness

Traditionally, military enrollees can eliminate their student loan debt by participating in active military duty after graduation. Depending on your area of study, your college or university can inform you about specific opportunities to wipe out your student loan debt while earning valuable career experience.

Finding More Information Online

• The Student Guide to Federal Student Aid - the official United States Government resource for prospective students offers a free, downloadable handbook to every federal student loan program.