Finding sources to fund a college education troubles many high school graduates and students returning to school for another college year. Not all incoming college students are fortunate enough to have parents who can support their pursuit for higher education financially. After all, college education is expensive, the funding of which should be considered carefully. Here is a brief discussion of Federal Student Loans and Private Student Loans.

The most popular route that students take to make their college education possible is by obtaining federal student loans. As the name implies, federal student loans are a form of assistance that the government grants qualifying applicants who wish to attend college. Federal student loans are generally offered under the names Stafford Loans and the PLUS loans. Stafford student loans are readily available to students, while PLUS loans are available to parents and graduate students. Federal student loans are popular among incoming college students because they are relatively easier to get, have fewer eligibility requirements, and offer lower interest rates over longer repayment terms. Since credit requirements are negligible with federal student loans, even people with bad credit scores can apply for them without much worry.

The problem with federal student loans, however, is that they are limited; the money that an incoming college student can borrow from federal student loan programs is often not enough to cover all college education related expenses. After all, a college student needs to pay more than just tuition and fees. College students also need to buy text books, supplies, a laptop computer, printer and accessories in order to keep up with today’s technology integrated studies. College students also need to pay living expenses, such as room and board at the dorm, an apartment off campus, utilities, laundry, gas, and other such expenses. All these expenses add up quickly, and the money available through federal student loan programs is too little to pay for everything that a college student truly needs.

To help bridge the gap between what the federal government can afford to lend and what today’s college students need, some college students opt to work part-time jobs while studying. Some, on the other hand, apply for what are called Private Student Loans. Private Student Loans are loans originated by banks and lending institutions which choose to offer financial assistance to college students. Chase, for example, offers up to $40,000 per academic year, up to $150,000 per college student.

While private student loans can be riskier than federal student loans, for most it’s the only viable alternative given the rising cost of college education. The interest rates are generally higher, and if the college student is not careful or discerning enough, he or she may have trouble repaying both federal and private student loans after graduation. College students with a bad credit score may need a co-signer, though many programs do not require a co-signer. Parents generally have a better credit score and can help the student obtain lower interest rates on private student loans by co-signing.

Ultimately, it’s the college student’s decision as to which loan programs he or she will use. The important thing to remember is to budget your expenses and to know your limits. Try one of our Excel based student loan calculators to help you compare Federal Student Loans vs Private Student Loans.

An account was opened for my son [edit] we misunderstood what the college advised and thought that the Parent Plus loan was for my son to borrow extra student loan money. But the account ended up in my name [edit] and this loan was for my son [edit]. How can we get this loan transferred into his name and out of my name. This loan was not
used by me in any way. Only a student loan used by my son [edit]. I would appreciate any help you can give me in this matter.

- Randy, September 4, 2007 (name changed for privacy)

Hi Randy, were you trying to reach us, Chase Student Loans, or some other student loan company? Please remember to keep your account numbers private, and only provide them to those who need them. Email is not considered a safe way to transfer this information, though we all do it in a pinch.

Student loan paper work are financial contracts just like a car loan or home loan. The PLUS loan application you signed should tell you your rights and responsibilities on it, and who to contact for questions. Your college is most likely not the finance company behind the loan. You might start by calling them, and ask what other options you have to finance your son’s education.

Federally sponsored loans such as Stafford, PLUS and others have caps and standardized features. Visit the school and pick up any pamphlet to learn more about the features, limits, and obligations. If it is absolutely necessary for you to take the loan out of your name, you will need to pay it off, if you are past any “out” clause for example. Again call the bank responsible for servicing your PLUS loan.

Other student loan products are available. If your son has already taken the maximum from the federal programs, he can try to get a private student loan such as the one from Chase found on our website. If he has good credit, he can get the loan without a co-signer.

Either way you should compare your options, paper by paper, loan application by loan application to make sure your family is better off in the end.

- John

After thoughts:

PLUS loans are available under the student’s name for Graduate school. Ask your Financial Aid counselor for details about the Graduate PLUS student loan program.

The Federal PLUS Loan Application and Master Promissory Note that I have here on my desk is OMB No. 1845-0069 Exp. Date 03/31/2008. Cancellation is clearly labeled in the Borrower’s Rights and Responsibilities Statement, Section 11. Section 11 Loan Cancellation discusses both full and partial PLUS loan cancellation terms and conditions as set by the Act (which created the standardized Federal loan programs). Here’s what it says, but remember that while the program is standardized, what YOUR promissory note says is what’s important, not what mine says:

11. Loan Cancellation – I understand that the terms or a full or partial loan cancellation depend on when I request the cancellation.

• At any time before my loan money is disbursed, I may decline all or part of my loan money by notifying my lender or my dependent’s school. No origination fee, guarantee fee, or interest will be charged on the amount of a loan that is declined.

• If the school receives the money by EFT and credits it to my dependent’s account, I may cancel all or a part of that loan by informing the school within 14 days after the date the school sends me a disbursement notice, or by the first day of the school’s payment period, whichever is later. (The school can tell me the first day of the payment period). If I cancel all or a portion of a loan as described in this paragraph, the school will return to my lender the cancelled amount of the loan money and the loan fees will be reduced or eliminated in proportion to the amount returned.

• At any time within 120 days of disbursement, I may pay back all or a part of that loan. The loan fees will be reduced or eliminated in proportion to the amount returned.

(end of Section 11)

Who would I contact in order to get a copy of my promissory notes for my loans? I joined the National Guard and in order for them to start paying off my loans they need a copy of them. Thank you.

- Steve, September 9, 2007 (name changed for privacy)

Hi Steve, on our Resources page which is a bit hidden at the moment, we list a few of the Federal Student Loan Websites that might be of help to you.

Depending upon the type of your student loans, you might find them using the Federal Direct Loan Server or National Student Loan Data System links. An easier way would be to check any recent statement you received about your student loans. A recent bill, statement, or deferment notice, for example, which should list a customer service contact number. Often times student loans come from multiple sources, and may be transferred from one servicer to another.

- John

After thoughts: If you have a private student loan, you will not find it listed in the Federal student loan database.

Private Student Loans differ from Federal student loan programs in several ways. College students can benefit from both sources of financial aid, however, it is important to know the differences between the two loan types to avoid confusion after completion of your education. Good advice is to always read any student loan applications in full before signing and accepting funds. Your student loan agreements will specify any available benefits, repayment terms and conditions. Don’t just take someone’s word for it, read the student loan agreement papers yourself which are there for this reason.

Private Student Loans

• No FASFA or Free Application for Federal Student Aid form is required.
• Loan proceeds can be sent directly to the student, instead of to the college.
• Covers all college education related expenses included previous school fees.
• Acceptable alternative when federal student loans are not enough.
• Interest rates and fees vary by lender and are impacted by your credit rating.
• No co-signer is necessary, but can be added if the student does not qualify
  alone.
• Payments may be deferred up to six months after graduation - terms vary by student loan lender.
• Interest rate discounts and rebates may be available - terms vary by lender.

Private Student Loans are often necessary to cover the rising cost of higher education. College students who need financial assistance in excess of the annual federal loan limits can turn to Private Student Loans. You can apply for a Chase Private Student Loan online at competitive interest rates. Chase is a national leader for funding private student loans and has provided billions of dollars of both federal and private student loans to undergraduate and graduate students alike.

Federal Student Loans

• FASFA application or Free Application for Federal Student Aid is required.
• Student loan interest can be federally subsidized or unsubsidized.
• Offer standardized options to postpone payments after graduation.
• Longer repayment terms are available for high student loan balances.
• Credit requirements are easier to meet, no co-signer is needed.
• Loan application must be certified and verified by the school.
• Funds can be used to pay most education related expenses.
• Some interest rate discounts and rebate programs may exist.
• Deferment and Forbearance of loan payments available under certain circumstances.

Federal student loans are currently the largest source of financing for college students. Federal student loan interest rates and repayment terms are generally more attractive when compared to Private Student Loans. One general college funding strategy is to maximize the use of Federal funds, then seek other sources of financial aid to fill in any funding gap.

Remember that all education loans have to be repaid, whether a Federal or Private Student Loan. College students should remember to be conservative and to borrow wisely. Do not borrow more money then you will need, and understand the burden that future monthly payments will place on your household finances. If you do not finish college, are not happy with your college education results, or are unable to find a job in your chosen field, your student loans still have to be paid.

FAFSA is the free federal application form for financial aid, which is generally the first step to apply for college financial assistance. Federal student financial aid deadlines generally run from July 1 of the current year to June 30 of the next calendar year. Free FAFSA application forms are available online at Fasfa.Ed.Gov web site. Check the FASFA Ed Gov web site and also your college Financial Aid web site for updates and school specific datelines.

College Year 2007-2008 FAFSA Application

FAFSA application deadline for the new college year is July 1st, 2007 to June 30th, 2008. New students must submit their FASFA application on the FASFA Ed Gov web site by midnight central daylight time June 30, 2008. Students continuing their education must renew each year by the same application deadline date. A note also, that your college must receive your complete and correct FASFA form information by your last day of enrollment in the 2007-2008 college year.

Schools and States may have their own deadlines and application forms necessary to award student financial aid. Check with your financial aid office for information specific to your needs. In other words, watch for application deadlines on 3 levels: Federal, State, and School.

Private Student Loans

If you happen to miss the FASFA application deadline or if Federal student assistance is not enough, try to apply for a Private Student Loan. Private Student Loans are available online from $1,000 to $35,000 per college education year. Loan proceeds can be use for college tuition, room, board, books, student fees, laptop computer, printer and other education related expenses.