College loans are often talked about as if they are some type of boogeyman in the world of education. Students fear getting out of school because they know they’ll have to start repaying them. If worse goes to worst and you have to declare bankruptcy, they are among the few financial debts you cannot discharge. Horror stories fill the media telling you the job market is poor and that your education won’t get you very far.
Stop listening to it.
Of course you need to make smart decisions with regard to your college loans, but the way the concept is being sold to you is far off-base. Most people can graduate with a marketable four-year degree for less than the price of a new car. College loans also allow you to get a forbearance when times are too difficult for repayment. Bottom line: as long as you’re trying to improve your education and looking for or participating in the workforce, you are going to be able to pay back the debt, and you’ll have something much more valuable in return.
After all, college graduates earn way more than non-college graduates during their lives in the workforce. Study after study has proven as much. So now that we have dispelled the myth of how all college loans are bad, let’s look at the 10 most common types.
1. The Federal Perkins Loan
According to AllTuition, the FPL is a 5% fixed interest rate loan for undergraduate and graduate students with exceptional financial need.”
“Because of its low interest rate, need-based award, and generous cancellation policies, it is one of the most affordable options for students in postsecondary education,” the site notes.
Here’s a quick overview of Federal Perkins Loans courtesy of the U.S. Department of Education:
Available to undergraduate, graduate, and professional students with exceptional financial need.
Interest rate for this loan is 5%.
Not all schools participate in the Federal Perkins Loan Program. You should check with your school’s financial aid office to see if your school participates.
Your school is the lender; you will make your payments to the school that made your loan or your school’s loan servicer.
Funds depend on your financial need and the availability of funds at your college.
The U.S. DOE explains that “Subsidized and unsubsidized loans are federal student loans for eligible students to help cover the cost of higher education at a four-year college or university, community college, or trade, career, or technical school. The U.S. Department of Education offers eligible students at participating schools Direct Subsidized Loans and Direct Unsubsidized Loans. (Some people refer to these loans as Stafford Loans or Direct Stafford Loans.)”
More from the department on Direct Subsidized Loans:
Direct Subsidized Loans are available to undergraduate students with financial need.
Your school determines the amount you can borrow, and the amount may not exceed your financial need.
The U.S. Department of Education pays the interest on a Direct Subsidized Loan
while you’re in school at least half-time,
for the first six months after you leave school (referred to as a grace period*), and
during a period of deferment (a postponement of loan payments).
Here’s a quick overview of Direct Unsubsidized Loans:
Direct Unsubsidized Loans are available to undergraduate and graduate students; there is no requirement to demonstrate financial need.
Your school determines the amount you can borrow based on your cost of attendance and other financial aid you receive.
You are responsible for paying the interest on a Direct Unsubsidized Loan during all periods.
If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the principal amount of your loan).
Through the PLUS Loan, also known as the Parent Loan for Undergraduate Students, the U.S. Department of Education is the student’s lender. These are only available if you have no credit incidents and the maximum loan amount is the cost of attendance (determined by the school) minus any other financial aid received.
Additionally, one must be a graduate or professional student enrolled at least half-time at an eligible school in a program leading to a graduate or professional degree or certificate, or be the parent (biological, adoptive, or in some cases, stepparent) of a dependent undergraduate student enrolled at least half-time at an eligible school. One must also meet the general eligibility requirements for federal student aid. If borrowing on behalf of a child, your child must also meet these requirements.
More information on the PLUS Loan is available at this link.
4. PLUS Loan for Graduate and Professional Degree Students
Edvisors has an excellent in-depth look at the PLUS Loan for Graduate and Professional Degree Students, highlighting the following key benefits of the loan:
The interest rate is fixed at 6.31% for the 2016-2017 academic year
Loan payments can be deferred while you are enrolled on at least a half-time basis at an accredited graduate school or professional school
A cosigner is not required
Multiple repayment plans (including income-based) available
As for the big question that both Nos. 3 and 4 present, an “adverse credit history,” which can keep you from getting the loans, includes the following:
A current delinquency of 90 or more days on more than $2,085 in total debt; or
More than $2,085 in total debt in collections or charged off in the past two years (before the date of the credit report); or
Default, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of federal student loan debt in the past five years (before the date of the credit report)
Nursing is an increasingly popular profession in the U.S. because there will be a tremendous need for it in the coming years as more people enter the health insurance marketplace, driving up the demand for healthcare services. The program is overseen by the Health Resources and Services Administration (HRSA), a division of the U.S. Department of Health and Human Services.
According to the official website, it “provides long-term, low-interest rate loans to full-time and half-time financially needy students pursuing a course of study leading to a diploma, associate, baccalaureate or graduate degree in nursing. Participating schools are responsible for selecting loan recipients and for determining the amount of assistance a student requires.”
The two major requirements for this loan include the following:
A citizen, national, or a lawful permanent resident of the United States or the District of Columbia, the Commonwealths of Puerto Rico or the Marianas Islands, the Virgin Islands, Guam, the American Samoa, the Trust Territory of the Pacific Islands, the Republic of Palau, the Republic of the Marshall Islands and and the Federated State of Micronesia.
Able to demonstrate financial need and provide financial information about your parents.
6. Health Professions Student Loan
The HPSL also falls under the purview of the HRSA. It provides “long-term, low interest rate loans to full-time, financially needy students to pursue a degree in dentistry, optometry, pharmacy, podiatric medicine, or veterinary medicine.”
Eligibility requirements:
You have to be “a citizen, national, or a lawful permanent resident of the United States or the District of Columbia, the Commonwealths of Puerto Rico or the Marianas Islands, the Virgin Islands, Guam, the American Samoa, the Trust Territory of the Pacific Islands, the Republic of Palau, the Republic of the Marshall Islands and the Federated State of Micronesia.”
7. Loans for Disadvantaged Students
The LDS program is ideal for “financially needy students from disadvantaged backgrounds, to pursue a degree in allopathic medicine, osteopathic medicine, dentistry, optometry, podiatric medicine, pharmacy or veterinary medicine,” according to the HRSA website, which adds that “Participating schools are responsible for selecting loan recipients, making reasonable determinations of need and providing loans which do not exceed the cost of attendance (tuition, reasonable educational expenses and reasonable living expenses).”
To qualify, applicants must be:
From a disadvantaged background as defined by the U.S. Department of Health and Human Services: An individual from a disadvantaged background is defined as one who comes from an environment that has inhibited the individual from obtaining the knowledge, skill, and abilities required to enroll in and graduate from a health professions school, or from a program providing education or training in an allied health profession; or comes from a family with an annual income below a level based on low income thresholds according to family size published by the U.S. Bureau of Census, adjusted annually for changes in the Consumer Price Index, and adjusted by the Secretary, HHS, for use in health professions and nursing programs.
A citizen, national, or a lawful permanent resident of the United States or the District of Columbia, the Commonwealths of Puerto Rico or the Marianas Islands, the Virgin Islands, Guam, the American Samoa, the Trust Territory of the Pacific Islands, the Republic of Palau, the Republic of the Marshall Islands and the Federated State of Micronesia.
8. Primary Care Loan
Med students who qualify for this HRSA loan must “enter and complete residency training in primary care within four years after graduation and practice in primary care for the life of the loan,” the website notes. It is for students pursuing “allopathic or osteopathic medicine” while loans to third and fourth year students “may be increased to repay outstanding balances on other loans taken out while in attendance at that school.”
Eligibility requirements demand that students be:
A citizen, national, or a lawful permanent resident of the United States or the District of Columbia, the Commonwealths of Puerto Rico or the Marianas Islands, the Virgin Islands, Guam, the American Samoa, the Trust Territory of the Pacific Islands, the Republic of Palau, the Republic of the Marshall Islands and the Federated State of Micronesia.
Enrolled as a full-time student at an accredited, participating school in a degree program leading to a Doctor of Medicine or Doctor of Osteopathic Medicine.
Able to demonstrate financial need and provide financial information about your parents (independent students do not have to provide parental financial information, but must be at least 24 years of age and must provide documentation showing you have been independent for a minimum of 3 years).
Not in default on any federal loan and owe no federal grant refund
In good academic standing
Registered with Selective Service if required by law
9. Consolidation Loan
Before deciding to go through with a Consolidation Loan, you need to be aware that while it comes with a lower payment, it can disqualify you from certain benefits. According to the Federal Student Aid website, particularly the question of “Should I consolidate my loans?,” you should be mindful of the loss of these benefits: “interest rate discounts, principal rebates, or some loan cancellation benefits.”
On the flip side of that — and why many people don’t mind the CLs — is the 30-year max time period that you are given to pay off your college loans. Tread carefully before deciding because, once consolidated, you can’t go back on it.
We always advise that if you can find a way to not consolidate and make the payments, you should because you will end up paying less interest over time. Sometimes, however, a lower payment is worth the trade off, so it all depends on what your financial situation and priorities are. More can be found at this link.
In Summary
One last thing you need to remember before applying for a subsidized or unsubsidized student loan — they are not your only options when it comes to paying for college. For example, if you have good credit, you could apply for a private loan through a participating bank or institution.
You could also greatly reduce the cost of your undergraduate education by first attending community college for two years before making the jump to a four-year university. Depending on your work situation, you could also pay as much on your tuition through your job as possible or even seek education reimbursement benefits that the company may offer.
Also, don’t rule out family members with money. They may not want to give you the cash — and you shouldn’t put them in that situation anyway — but if they trust you, they might be willing to enter into an agreement for repayment at an interest rate slightly lower than what you could get through a bank. (They’re also more likely to forgive the debt over time.)
Which college loans do you believe are the best options, and which ones might we have forgotten? Sound off in the comments section below.
Aric Mitchell's work appears regularly here at 4tests.com and across the web for sites, such as The Inquisitr and Life'd. A former high school teacher, his passion for education has only intensified since leaving the classroom. At 4tests, he hopes to continue passing along words of encouragement and study tips to ensure you leave school ready to face an ever-changing world.
College loans are often talked about as if they are some type of boogeyman in the world of education. Students fear getting out of school because they know they’ll have to start repaying them. If worse goes to worst and you have to declare bankruptcy, they are among the few financial debts you cannot discharge. Horror stories fill the media telling you the job market is poor and that your education won’t get you very far.
