It’s May, and it’s decision time. Negotiating with the colleges is over, and it’s time to figure out how to cover those out of pocket costs you are left to deal with. For most families, this will entail some kind of financing. This information will help make your
financial loan decisions a bit simpler.
In this post, you will find tips on:
· Deciding how much to borrow
· Rights and Obligations as a borrower
· Facts on being a Co-Signer
· Some important questions to ask a lender before signing on the dotted line
· Some suggestions of reputable lenders
If you read through this information and have any questions, please feel free to contact our office at 563-359-1104.
Before embarking on the search for an education loan, we strongly recommend that you examine the benefits of home equity financing. After the federal loans (Stafford and Perkins), utilizing home equity is by far the least expensive method of borrowing for college.
Home equity financing in combination with a Money Merge Account has been shown to dramatically decrease the amount paid in interest compared to traditional financing means. If you
would like more information on this strategy, please contact our office at scott@cfstrategies.com or scott@realcollegesavings.com.
Deciding
How Much to Borrow:
One of the first steps to deciding how much to borrow for you child’s education is to know all of the costs associated with that particular school. Typically you will get the best idea of what costs will be left up to you when your son/daughter receives their Financial Aid Award Letter. These typically come in the month of April and are based on the schools COA (Cost of Attendance) and your EFC (Expected Family Contribution).
A school’s COA includes:
· Tuition and Fees
· Housing
· Meals
· Books and Supplies
· Personal Expenses
· Transportation
Once you know what the school is leaving up to you to cover out of pocket, the next thing to do is decide how much you want to actually pay out of pocket and how much you want your student
to take on with student loans.
Here are some tips on how to decide on a specific amount.
· Determine what the student is going to be responsible for and what the parent(s) will be responsible for. Some parents want to cover 100% of the out of pocket costs for college (those expenses left over after the financial award). Some parents expect students to cover 100% of the out of pocket costs. Most families are somewhere in between. You as a family need to determine what your split will be. Then you can determine what is the best way to cover that split.
· Accept only what is necessary to cover your remaining college costs. This means you will need to decide whether your student will be living on campus, off campus, or with parents or other family members. Decide how much you the parents can afford to pay out of pocket and whether the student is willing to work during the school year to help pay for college costs. Then come up with an amount that you believe will cover what is left over.
· Keep repayment of loans in mind when deciding on an amount. As soon as a student graduates or is finished with school, they typically have a 60 day grace period before repayment of loans begins. It is during this time your student will want to consolidate their loans into one monthly payment. Otherwise your student will have multiple payments that can total as much as 10% of their monthly income. You will want to decide on an amount that you believe your student will be able to handle repaying in a timely fashion.
Also remember that interest plays a big factor in the amount your student will pay back to
the lender. The amount you pay back will always be more than the amount you borrow, so try and find loans with as low of an interest rate and interest accumulation as possible.
Federal loans are the best to start with. Federal loans have fixed rates that are established
upon disbursement of the loan. These loans also do not require a cosigner and some do not accrue interest while the student is in school.
Private loans are the next best solution. While they can have variable rates and can require
a cosigner, they are designed with students in mind and often have reasonable interest rates and payment plans.
Normally, CFS does not recommend that a family take out a Parent PLUS loan. Parent PLUS loans typically have high interest rates around 8.5-9 % while many student loans rest
around 6.9%. They also accrue interest from day one and monthly payments are to begin 60 days after loan disbursement. They are solely the parents’ responsibility and in the end you will likely end up paying more in interest with the PLUS loans than with many other financing models.
· Fees are also involved. Many families are not aware of this when they set an amount for their loan, but many private lenders charge fees on the loan and automatically deduct those fees from the loan amount before disbursement. Before signing for a loan, ask the lender about their fee amounts so that you can take them into consideration.
Rights and Obligations of the Borrower
Before you and your student decide to take on a student loan, here are some rights and obligations you will need to know. Decide if these obligations are acceptable before taking out any loans because once you make the decision to borrow this money, your student must be able to keep up their end of the bargain.
Rights as a borrower:
· You may accept all/some of your Federal Student Loans. While the school may offer your freshman $5,500 in Stafford loans, you do not have an obligation to accept the entirety of the loan offered. You can indicate to the school how much you feel your student should take on from that amount.
· You are entitled to a copy of the loan promissory note. Both Federal and Private loans must offer a promissory note for your records.
· You have the right to defer payments for a certain period of time or request forbearance
if you qualify. Deferment of payments can be offered due to
o economic hardship,
o unemployment,
o military deployment,
o enrollment in school,
o internship,
o national service, and
o similar situations.
Forbearance lets you suspend or reduce your student loan payments under certain circumstances and for specified periods of up to one year at a time.
During forbearance, you will receive quarterly interest statements and have the option to pay the accrued interest. If you don’t, any unpaid accrued interest will be capitalized.
Forbearance is a practice reserved for when the loan is in repayment, typically after the student graduates or leaves college.
· You may be able to repay under a graduated or income based payment plan. However, not
all lenders give this option. It is available under the federal government loans.
Borrower Responsibilities:
· You must notify the school if you want to borrow less than the federal loan amount awarded. You must either give the school this notice in writing or by phone as soon as award is accepted by student. Otherwise the school will automatically process the full amount.
· Must repay loan in full even if your education is not complete and if you do not get a job that supplies enough income.
· You must notify the lender immediately of any name, address, phone, or social security changes.
· Must make scheduled monthly payments on time, even if the lender does not send you a bill or monthly statement.
Being a Cosigner
Private Student Loans are based primarily off of the borrower’s credit rating. For many students’ their credit ratings are not sufficient enough or are totally non-existent. In these cases a cosigner is necessary in order for
the student to become a borrower and receive a low interest rate. The better the credit score of the borrower/cosigner, the lower the interest rate on the loan.
However, when deciding to become a cosigner keep in mind that you will be just as accountable for the loan repayment as the student. If the student borrower cannot make their payments for any reason and defaults on their loan, the burden or repayment will fall on you the cosigner.
This is something that we believe parents and students should discuss before jumping into a private loan together. Talk about the burden on the student to repay these loans and make sure that there is mutual trust before cosigning.
Some questions to ask lenders (as suggested by Sallie Mae Student Loans)
- How long have you been in student loans?
- Are you a financially secure company?
- Who services your loans?
- Who guarantees your loans?
- Who performs customer service for you? What kind of training or qualifications do they have?
- Do you certify your compliance with applicable regulations? Where? May I get a copy?
- Do you charge an origination fee?
- Do you charge a default aversion fee?
- If you rebate the loan fees, when and based on what principal amount?
- How do I earn any interest rate or fee reductions?
- When do I earn any interest rate or fee reductions? Is your rate reduction immediate? Is your fee reduction immediate?
- Do I have to do anything to keep my benefits?
- Do I lose any benefits if I make one late payment? Do I lose those benefits forever?
- What happens to my eligibility for benefits if I consolidate my loans?
- Do I have to repay earned benefits if I consolidate my loans with another lender?
- Where do you disclose the terms and conditions for your loan discounts and benefits? Will you provide/confirm the terms and conditions in writing?
Comparison by Sallie Mae of Federal Loans Vs. Sallie Mae Private Loans.
SallieMae is typically CFS’s first choice for private education loans.
| Federal student
loans | Private student
loans |
| Stafford
Loan
Subsidized | Stafford
Loan
Unsubsidized | Perkins
Loan | Signature
Student
Loan | Tuition
Answer
Loan | Community College
Loan |
| Interest rate |
| Unsubsidized Stafford
Loans 6.8% Subsidized Stafford Loans
(2009-2010) 5.6% | 5% fixed | Variable, based on credit history | Variable, based on credit history | Variable, based on credit history |
| Fees |
| For loans first disbursed July 1, 2007–June 30, 2008: Up to 2.5% in fees
that includes a 1.5% federal origination fee and a 1% federal default fee.
There are lenders and guarantors that work with Sallie Mae that pay all or a
portion of these fees. | None | No disbursement fees for most borrowers Repayment fees are 0%–3% | Disbursement fee is 1%–6.5% | No disbursement fee Repayment fees are 0%–6.5% |
| Annual loan
limits |
| Dependent Freshman $5,500 Sophomore $6,500 Junior or senior $7,500 Independent Freshman $9,500 Sophomore $10,500 Junior or senior $12,500 Graduate or Professional
$20,500 For loans first disbursed
on or after July 1, 2008. | $4,000 | Minimum: $500 Maximum: cost of
attendance minus financial aid | Minimum: $1,500 Maximum: $40,000 | No limit |
| Aggregate loan
limits |
| Stafford
Loans | Perkins Loans | Signature Student Loans | Tuition Answer Loan | Community College Loan |
| Dependent
$31,000 Independent
$57,500 Graduate Level $138,500 | | | | $130,000 |
| Repayment |
| Six months after student graduates, withdraws, or attends
school less than half time. | Nine months after student graduates, withdraws, or attends
school less than half time. | Six months after student graduates, withdraws, or attends
school less than half time. | Pay both principal and
interest immediately. Pay only interest while
you are in school (at least half time). Defer all payments
(principal and interest) while you are in school at least half time. | Standard, graduated, and
extended repayment options are available. Pay only interest while
you are in school (at least half time). With the $10 deferred
repayment option, defer payments for up to 12 months. |
Federal Stafford loan
Federal Stafford loans first disbursed July 1, 2006 are fixed-rate, low interest loans available to undergraduate students attending accredited schools at least half time. Stafford loans are the most common source of college loan funds.
Eligibility
- You must have submitted a FAFSA to be eligible for a Stafford loan.
- For subsidized Stafford loans, you must have financial need as determined by your school.
- You must be a U.S. citizen or national, a U.S. permanent resident, or eligible non-citizen.
- You must be enrolled or plan to enroll at least half time.
- You must be accepted for enrollment or attend a school that participates in the Federal Family Education Loan Program.
- You must not be in default on any education loan or owe a refund on an education grant.
Features
- Sallie Mae lenders offer borrower benefits on Stafford loans that can save you money in repayment.
- Flexible repayment options are available for Stafford loans.
- No payments are required while you are in school at least half time.
- You can manage your account online 24/7 at www.ManageYourLoans.com.
- You get life-of-loan servicing from Sallie Mae.
- There is no prepayment penalty.
- No credit check is required for a Stafford loan.
- Six-month grace period when no payments are required immediately following your graduation or dropping to less-than-half-time status.
One way to help pay down your loan
With Upromise Loan LinkSM student and parent borrowers who join Upromise® can link their Sallie Mae loan account to their Upromise account and use their Upromise rewards to help pay down their eligible Sallie
Mae serviced student loans. Visit www.salliemae.com/upromise to learn more and enroll today.
Legal
You are responsible for all of the interest that accrues on your unsubsidized Stafford loan while you are
in school, but you do not have to pay the interest during this time. Unpaid interest that is deferred until after graduation is capitalized (added to the loan principal) and you will therefore pay interest on a higher loan amount. Interest does not accrue on subsidized Stafford loans while you are in school, during grace, and during authorized deferment.
Federal Perkins loans
A Federal Perkins loan is a low interest (5%) loan for undergraduate and graduate students with “exceptional” financial need.
Perkins loan qualification requirements
- Enrollment in an eligible school at least half-time in a degree program
- U.S. citizenship, permanent residency, or eligible non-citizen status
- Satisfactory academic progress
- No unresolved defaults or overpayments owed on Title IV education loans and grants
- Satisfaction of all Selective Service requirements
The U.S. Department of Education provides a programmed amount of funding to the school. In turn, the school determines which students have the greatest need. The school combines federal funds with some of its own funds for loans to qualifying students.
To apply for the Federal Perkins loan, you must submit the Free Application for Federal Student Aid (FAFSA).
Your school will pay you directly (usually by check) or apply your loan to your school charges. You’ll receive the loan in at least two payments during the academic year.
Federal Perkins loans share many of the characteristics of subsidized Stafford loans. The most notable differences are no fees and a longer grace period.
SallieMae Signature Student Loan
The Signature Student Loan is a popular after-Stafford loan with competitive rates and industry-leading servicing. If grants, scholarships, and Federal Stafford loans have not covered the total cost of your education, Signature Student loans can help.
Eligibility
- You must attend an eligible community college or a four- or five-year college at least half time and be working toward your degree.
- You must meet current credit criteria.
- You must be making progress toward a degree.
Benefits
- No income requirement.
- Cosigner release available after the first 24 on-time payments of principal and interest.
- No payments required while in school.
- You can borrow as much as you need to pay for the cost of your education as certified by your school.
- Flexible repayment options.
- Upromise Loan Link allows you to pay down your loan with everyday purchases.
Features
- Easy, secure online applications with fast credit decision and electronic signature.
- Available for U.S. students in study abroad programs.
- Available to international students with an eligible cosigner.
- Easy online account management 24/7.
- Convenience of having all your student loans in one place and receiving one monthly bill when your Stafford loans are serviced by Sallie Mae.
Loan terms
Aggregate loan limits
Community colleges
Four- and five-year colleges
- $100,000 for undergraduates.*
- $150,000 for graduate students.*
- $220,000 for graduate health disciplines.*
*Includes all private student loan debt.
Interest rate
- Interest rates are variable and based on either the Prime or LIBOR rate.
- Manage your credit well and get a lower interest rate.
- Make interest payments during school so you have a lower amount to repay.
Fees
Usually 0%; a fee may be assessed depending on credit history.
Repayment
- Standard repayment term of 15 years, with the option to extend terms (up to 30 years) for higher aggregate loan balances.
- Prepay your loan at any time without penalty.
Another way to help pay down your loan
With Upromise Loan LinkSM student and parent borrowers who join Upromise® can link their Sallie Mae loan account to their Upromise account and use their Upromise rewards to help pay down their eligible Sallie
Mae-serviced student loans. Visit www.salliemae.com/upromise to learn more and enroll today.
U.S. Bank No Fee Education Loan
You may want to consider a loan from U.S. Bank or a similar institution.
Supplemental Loan Options
U.S. Bank No Fee Education Loan The main difference between this and other U.S. Bank supplemental education loans is that no reserve fees are charged. The amount approved for the loan is the same amount
disbursed to you.
Cosigner Encouraged: With
the help of a qualified cosigner, you may more easily qualify for a loan and receive a better rate.
Loan Details:
- Borrow up to the cost of attendance, less financial aid received. This amount will be the lesser of what the borrower requests, program limits, or school certified amount.
- If you plan to enroll for more then one term, consider the cost of your annual enrollment and apply for a loan to cover the full year expense.
- No application, administration or reserve fees (reserve fees are similar to federal loan guarantee fees that are deducted from your approved loan amount)
- Three repayment options
Enrollment: Part-time or full-time in an eligible four-year or graduate school.
Loan size: $1,000 minimum, $120,000 aggregate borrowing limit from all student loan programs (which includes federal). Loans at the highest interest rate tier are subject to $20,000 maximum.
Repayment Discount: Use our convenient auto-pay option and receive a 1/2% interest rate reduction.
Note: Program rules and qualifications are subject to change at any time without notice.
To learn more about U.S. Bank’s loan options, click here.
