College Loan

Even if we start to save for college expenses the day our child is born, college costs present a challenge to many of us. With the cost of universities and colleges in the range of $15,000 to $50,000 per year, a college loan is a necessity. Fortunately, there are some attractive interest rates we can obtain through federally-funded college loan programs.

Getting a College Loan

The process for getting a college loan is fairly simple.  There are literally millions of college students in need of college loans, so the entire process is well known to those that administer the programs.  In fact, the process goes beyond just getting a college loan, since there are other forms of federal aid too.  That topic will be discussed in more detail later in this publication.

The application procedure for getting a college loan is a three step process:

1. Applying for a Loan
2. Receiving Aid Reports
3. Working with Financial Aid Administrators

Once you've completed the application process, you have at least two more steps ahead of you before making a final decision on a college loan:

1. Evaluating the Various Types of Federal Student Loans
2. Assessing Alternatives to Traditional College Loans

Free Application for Federal Student Aid

The first step in getting a college loan is filling out an application known as the Free Application for Federal Student Aid or FAFSA.  This is one of those items you should take care of as soon as possible, since some colleges and universities establish deadlines for submitting aid applications.  You can fill out the FAFSA online at the Department of Education's website.

Student Aid Report

About four weeks after you've completed the FAFSA, you should get a Student Aid Report, or SAR, in the mail.  You're responsible for checking the SAR for errors; confirming the information on the report is correct.

When everything is finalized, your Student Aid Report will list your Expected Family Contribution, or EFC.  Your Expected Family Contribution is a formula-driven calculation that figures out how much financial aid you are eligible for, including a college loan.

Financial Aid Administrators

The last step in the process is to talk with the financial aid administrators at the colleges you or your child is considering attending.  The aid administrator will examine your Student Aid Report, and use the information to prepare a formal letter that outlines the amount of aid and the types of financial aid the college is willing to offer.  That letter is known as an Award Letter.

Types of College Loans

A college or federal loan is borrowed money, which means it needs to be repaid with interest.  College loans from the government are true loans, just like any other loan you'd get at a local bank.  There are several different types of college loans available to students and their parents.

Federal Perkins Loans

Federal Perkins loans are offered by participating schools to those students that demonstrate the greatest need for financial aid.  Priority for these loans is first given to students that are getting Pell Grants; something we will talk more about later.  Repayment on a Perkins loan is made back to the college itself.  In 2011 / 2012 loan maximums under this program are $5,500 per year for undergraduate students.

Stafford Loans

There are two kinds of Stafford loans offered to college students:  subsidized and unsubsidized loans.  The difference between these two is the timing before interest expense starts to accrue on this type of college loan.  Under the subsidized program, the Department of Education pays the interest on the loan until the student leaves college.  Depending on the program, and the student's enrollment status, these college loans can range up to $20,500.

PLUS Loans

PLUS loans are college loans that are made available to the parents of dependent undergraduate students.  PLUS loans are financial obligations of a student's parents.  The maximum anyone qualifies for under this program is the cost of attendance at the college, minus all other forms of aid received.

College Loan Alternatives

There are several alternatives to college loans that students can use to help pay the costs of college tuition.  In fact, some of these alternatives might even be more desirable than a college loan.

Federal Grants

Unlike a college loan, grants are a form of federal aid that does not have to be repaid.  The federal government runs two college grant programs:

• Pell Grants - available almost exclusively to undergraduate students.  Pell Grants are based on three factors:  need, cost of attendance, and enrollment status.
• Federal Supplemental Educational Opportunity Grant - also known as FSEOG grants, this help is targeted towards undergraduate students with exceptional financial need.

College Work Study Programs

College work study programs are another alternative to college loans.  These programs allow the student to earn money by working at the college or university they are attending.  The money earned while working can be used to pay for the cost of college tuition.

Under the federal work study program, both graduate and undergraduate college students can work either on or off campus.  The hourly pay is at least minimum wage, and there is no limit on earnings through this program.

Private Student Loans

The final alternative students have to a federally-funded loan is to seek out private student loans to pay for college.  This type of college loan is becoming more popular because federal loans have not kept pace with the rapidly rising cost of college tuition.

Sallie Mae has a private college loan program that is offered through select lending institutions or lending partners.  The financial aid provided is privately insured, and interest rates are based on credit history.

Many of the larger banks in the United States also offer private student loans.  Lenders that offer special programs in this area include Citibank, Bank One, Wachovia, Bank of America and Wells Fargo just to name a few.

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