Comparison Of Student Loans

Student loans have grown over the years, particularly since the financial crisis. This is due in part to the increase in education costs, but many students now face higher levels of debt than ever before. There are currently 4 types of student loan options: federal government, private companies, state-sponsored institutions, and banks. Each option has its own pros and cons, and this video will compare them side-by-side.

The Federal Student Loan Program was created in 1965, and is funded by the US Department of Education. It offers several different programs including Direct Subsidized and Unsubsidized Stafford Loans, PLUS Loans (for parents), and the Federal Perkins Loan. These loans have variable rates, based upon the Prime Rate, plus 2%.

Private student lenders offer fixed rates and terms. Most major banks offer private student lending services, such as Citi Bank and Wells Fargo. Private student lenders often charge lower rates compared to federally regulated loans. However, they may require you to pay origination fees. State-based alternative lenders include Sallie Mae and Great Lakes Higher Education. While these colleges don’t have traditional office locations, their website allow you to apply online.

State-sponsored schools are not run by private companies or banks, but rather governments. As such, both interest rates and repayment plans vary depending on where you attend school. For example, New York City residents attending public schools qualify for low-interest NYC city funds, while those attending out-of-state colleges are eligible for much lower rates offered by the NYS Thruway Authority. Other states with affordable college funding programs include California, Massachusetts, Virginia, Washington, DC, Ohio, Colorado, Tennessee, Texas, and Florida.

Banks are businesses that are chartered by the federal government, whereas alternative lenders are not; however, some banks may partner with alternative lenders to provide student loans. In order to receive the lowest rate possible, you should choose a lender that does business with numerous schools at once. Banks generally base the interest rate on the income bracket of the borrower, while alternative lenders tend to use standardized formulas, regardless of your income level.

Comparison Of Student Loans

Federal Direct Loan (FDL)

This loan type was first created in 1990. FDL loans are considered subsidized loans. The government pays for approximately 75 percent of each student’s tuition and fees. Private banks and credit unions that offer FDL loans may charge an origination fee. In addition, private lenders may require students to pay closing costs.

Parent PLUS Loan

Parent PLUS loans were originally created in 1992. These loans allow parents to borrow money for their children’s college education. Parents who have already taken out educational loans can use these funds toward their children’s post-high school education at participating schools. The interest rates on parental PLUS loans can vary based on several factors including the amount borrowed, repayment period, and income. To avoid paying high interest rates, borrowers should make regular payments on time.

Subsidized Stafford Loans

Subsidized Stafford loans began in 1965. These federally funded loans provide eligible undergraduate students with low interest rates while they are enrolled full time. After graduation, graduate students may repay their loans at lower interest rates than undergraduates. Students must meet certain criteria before receiving a loan.

Unsubsidized Stafford Loans

Unsubsidized Stafford loans were first introduced in 1998. Eligible high school graduates can receive an unsubsidized Stafford loan to cover the cost of their first year of undergraduate study at any public or private postsecondary institution. Unlike subsidized Stafford loans, unsubsidized Stafford loans do not have a fixed rate of interest. Instead, the U.S. Department of Education sets the variable rate in accordance with changes in the Treasury bill rate plus an additional premium. Lenders generally add two points to the base rate. This means that if the prime rate increases by 1%, the interest rate on an unsubsidized loan would increase by 2%. Borrowers must begin repaying their loans after 10 years and continue to repay them until they reach 22 years old. After that age, borrowers can start making monthly payments under an extended payment plan. Undergraduate students whose annual household incomes exceed 150% of the federal poverty level can apply for a third option: Income Based Repayment (IBR). IBR requires the borrower to pay no less than ten percent of discretionary income towards his/her total outstanding loan balance. Additionally, borrowers can request a deferment either temporarily or permanently. Students must demonstrate financial need to qualify for a temporary deferment. Deferments last between three months and five years, depending on the type requested. Permanent deferrals can be granted to graduate or professional students who cannot afford to pay back their loans. These loans are only offered to those pursuing a career in medicine, dentistry, veterinary science, nursing, pharmacy, dental assisting, optometry, law, accounting, actuarial science, architecture, teaching, engineering, architecture technology, physical therapy, radiologic technology, among others.

Perkins Loan

The Perkins Loan is intended to help students pursue degrees in trades and vocational fields. While these loans are geared towards higher education, they can be awarded to students enrolling in community colleges, technical schools, and apprenticeship programs. As opposed to most federal loans, Perkins loans are renewable indefinitely. However, they never accrue interest unless the borrower defaults on payments. If the borrower is pursuing an associate degree or certificate program, he or she will be able to borrow up to $23,000 per academic year. An undergraduate degree recipient can expect to receive about $28,000 per year. Graduate students can borrow up to $57,500 per year. Students in trade programs can borrow up to $17,400 for six month terms. Upon completing his/her training, the student will then have 12 months to repay the Perkins loan. Borrowers must submit proof of completion of training along with certification verifying their skills.

Comparison Of Student Loans

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Comparison Of Student Loans

As you can see, student loans have been around forever, yet they have not changed significantly since their inception. Many people are unaware of how student loan interest rates work and what exactly happens to the money after being paid off.

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Comparison Of Student Loans

Federal student loans

Federal student loan programs are administered by the U.S. Department of Education, making them some of the largest student loan providers in the United States. These loans offer lower interest rates than private lenders and have flexible repayment options. However, if borrowers miss payments, they face high fees and even possible garnishment of their wages. Private lenders, on the other hand, generally do not charge interest on federal loans. As a result, government-backed student loans appear less expensive at first glance, but the long-term cost can often be higher than private loans.

Guaranteed Student Loan (GSL)

The GSL program was created by Congress in 1965 and guaranteed by the US Department of Education. To qualify for these loans, students need only prove financial need and meet income restrictions. While the interest rate on these loans is fixed, many financial products pay variable rate based upon prevailing market conditions. If a borrower stops paying on these loans, he or she may lose access to future loans and risk having defaulted debt included on his or her permanent credit report.

Direct Subsidized Loan (DSL)

Direct subsidized loans were introduced in 2008 in order to increase the accessibility of college financing. The maximum amount a single family borrower can receive depends on current earnings and assets. In addition, eligible borrowers are allowed to take advantage of extended repayment plans, removing the burden of monthly payments for several years after graduation. Students who participate in the military and attend public universities are exempt from repaying their subsidized loans.

Direct Unsubsidized Loan (DUSL)

These types of loans are designed to provide low-interest financing directly to students without regard to their families’ finances. Borrowers must complete FAFSA forms and show proof of eligibility, including non-refundable application fee, before receiving funding. DUSLs have no limits on the total amount borrowed. The interest rate is determined based on a variety of factors, including the borrower’s expected family contribution and the school attended. Repayment begins six months after graduation or after the completion of coursework, whichever comes later.

Private Loan

Private loans are issued directly from banks or other lending institutions to students. Unlike federal loans, private loans do not require borrowers to fill out any paperwork or submit financial documents to obtain funds. Lenders set their own terms, including interest rates and length of repayment. Most private loans are originated and serviced by commercial banks. After receiving a bachelor’s degree or completing nine months of postgraduate study, students may find themselves burdened with high private loan debts.

Parental PLUS Loan

Parent PLUS loans are offered primarily to parents of dependent undergraduate students and certain graduate students enrolled in full-time graduate studies. Parents borrowing money under this program can use the funds toward any type of educational expense incurred on behalf of their children, except for room and board. A parent borrower must be co-signing the loan along with his or her child, and both must be attending college together. The interest rate and terms for the loan are determined by the lender. Borrowers may borrow up to the value of their annual income, capped at $23,000 for undergraduates and $31,000 for graduates.

Health Insurance

Many schools require students to purchase health insurance, regardless of whether they choose to accept the school’s grant money. For those who cannot afford insurance on their own, the school will typically help them apply for free coverage. Students can also opt to purchase their own individual policy. Either way, the school makes sure that students receive a waiver for dependents enrolled in the plan.

Tuition Assistance Program

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