Parents ask me about student loan options this time of year (June), so I thought I’d lay them out here.
First comment: god, I HATE student loans! For personal reasons (I struggled with 100K-plus of my own debt between Wesleyan University and St. John’s Law School), which still affects me today).
But if you need to borrow, here’s a brief, non-comprehensive low down:
- Subsidized Direct (Stafford) Loan: from the college financial aid office, but funds are from the Department of Education.
- The rate is currently fixed at 3.4%, but could change in July depending on how congress deals with it – this loan’s rate is scheduled to rise to 6.8%. Also:
- loan amounts are relatively small – up to $5,500 per year for the freshman year but increase each year; and
- the government pays (“subsidizes”) the interest until six months after graduation.
- Unsubsidized Direct (Stafford) Loan: also awarded by the financial aid office, also funds from the Department of Education.
- PLUS Loan: a parent, not student, loan (Parent Loan for Undergraduate Students). Also from the Department of Education.
- Interest rate is 7.9%, and
- you pay a 4% (!) “origination” fee.
- You can borrow up to the entire Cost of Attendance of the college, less any financial aid received.
- There are a variety of repayment options, but interest accrues upon disbursement (unlike the Subsidized Direct Loan).
- You must qualify, but it’s much easier than qualifying for a mortgage, for example.
- Private student loans: These are fewer and farrer (I know it’s not a real word, but it should be!) between than pre-2008, but there are approximately 25 or so lenders out there. Comments:
- Expect to co-sign if you’re a parent.
- Rates are variable, meaning not only that they can go up or down, but also that rates vary based on credit.
- Discover, Sallie Mae and others are still lending. Check with your local bank or credit union, if applicable.
Last note on all of the above: you cannot discharge a student loan in bankruptcy, which, hopefully, won’t be an issue for you but I predict that it will be for tens of thousands. Look for this feature to change at some point.
Here’s how to reduce, or even eliminate, dependence on student loans: a recorded version of a lecture I stopped giving sometime in late 2012 – no charge.