Student Loans: Programs for College Bound Students

student loans

One of the most important things students and/or their parents consider when applying for college is the estimated tuition fees and living expenses.

For the ones who cannot afford those expenses, student loans represent one of the major ways to finance their studies.

We can separate two broad categories of student loans:

  • Federal loans, limited funds that can be taken even with “poor” credit history.
  • Private loans, which are a little more difficult to get because of several requirements.

In order to be eligible for federal financial aid, you must be a U.S. citizen, a U.S. national, or a U.S. permanent resident. Moreover, the college you have enrolled have to be an accredited one.

These loans are not unlimited, and not every student can easily get access to these funds.

If that is the case, private loans are there to help. However, getting a private loan requires good credit history of your parents or a co-signer and generally charges higher interest rate compared to federal loans.

Below I presented the two types of federal loans a U.S. student can be eligible for (all the data is based on loans first disbursed on or after July 1, 2015, and before July 1, 2016):

The William D. Ford Federal Direct Loan Program.

The U.S. Department of Education is the lender.There are four types of loans under this program:

  • Direct Subsidized Loans.
    For undergraduate students who demonstrate financial need. The amount of the loan varies from $3,500 to $5,500 for a year, depending on grade level with an interest rate of 4.29 percent.
  • Direct Unsubsidized Loans
    For undergraduate and graduate students, without any requirement of financial need. The student is responsible for interest during all periods. The amount of the loan varies from $5,500 to $20,500 for a year (minus any subsidized funds received in the same period), based on grade level and dependency status. A 4.29 percent interest rate is applied to undergraduate students, and a 5.84 percent interest rate to graduate and professional students.
  • Direct PLUS Loans
    For parents of dependent undergraduate students and for graduate or professional students. In this case, the financial need is not required. The student must be either a dependent undergraduate student for whom a parent is taking out a Direct PLUS Loan or a graduate or professional student who is receiving a Direct PLUS Loan. The maximum yearly amount of this type of loan is the cost of attendance minus any other financial aid student receives. The interest rate is 6.84 percent.
  • Direct Consolidation Loans
    Provides the borrower with an option to consolidate all of his/her federal student loans into a single loan with a single loan servicer. In this case, the college is the lender. The yearly loan amount can be up to $5,500 for undergraduate students and up to $8,000 for graduate and professional students. The maximum amount is $27,500 for undergraduates and $60,000 for graduate students. The interest rate is fixed 5 percent.

The Federal Perkins Loan Program.

For undergraduate and graduate students with exceptional financial need. Eligibility is based on student’s financial need and a number of available funds at the college.

Private student loans are offered to students also by a number of financial institutions with interest rates ranging from 3 percent up to 12 percent. However, most of the time the banks require a co-signer for this type of loans.

Finance specialist with 4+ years of working experience, out of which 2 years as a SME relationship manager at Byblos Bank and 2 years as a Finance Director in a Food & Beverage sector. BA in Economics, MA in finance, CFA Level 1 and F1, F2, F3 level of ACCA and currently write for www.benzinga.com and www.mtnewswres.com.

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