Your Student Loan Guide

Loans can seem like a great way to help you achieve your dreams of higher education. After all, if someone is giving you money to go to school, who wouldn’t say - sign me up!

However, student loans - while helpful - are not a “gift”, they do need to be paid back. In addition, they can never be removed from your credit history or the debt forgiven, except for rare and specific situations, which the average student is unlikely to qualify for.

Fortunately there are a lot of options to help you get the financing you need to pay for your education, and to get help paying off your loans in a timely manner. However, it’s important you understand what you’re getting into to avoid graduating and only then realizing how much you have to pay back.

Federal Loans

The federal government offers loans in a few different flavors. Loans can either be subsidized or unsubsidized. It’s critical to understand the distinction, and how interest on the loans can add up, in order to avoid unpleasant surprises.

In order to qualify for a federal loan or grant, you have to complete the FAFSA (Free Application for Federal Student Aid).

Subsidized Loans

Slightly better terms for students with financial need
Greatest benefit: Government pays interest while you’re in college and for six months after graduation

Unsubsidized Loans

Interest starts accruing immediately after disbursement
If you don’t pay interest while in school, it accumulates and is added to principal
Can result in much larger repayment amount than originally planned

Interest Rates

In 2012 there was some debate about how to handle the student loan interest rate. The bipartisan plan currently in place ties interest rates to the 10-year Treasury note.

Current Rates

Loans disbursed July 2014-2015: 4.66% (fixed)
Loans disbursed July 2015-2016: 4.29% (fixed)
Loans disbursed July 2016-2017: 4.45% (fixed)
Loans disbursed July 2017-2018: 4.45% (fixed)

Rate Updates

Rates are modified every June for new loans
Maximum rates:
- Subsidized loans: 8.25%
- Unsubsidized loans: 9.5%
- PLUS loans: 10.5%

How Quickly Interest Can Add Up

Example: $2,000 unsubsidized loan

Interest rate: 4.29%
No interest payments during school
After five years (typical graduation time): $2,429.00

Most students borrow more than $2,000, and interest grows even more if graduation takes longer. Remember that interest rates for new loans will change and are likely to increase.

How Much Can You Borrow?

The school you choose to attend will determine your eligibility amount. The federal government has also placed limits on the amount of loans a student can take out, depending on:

Your year in college
Whether you are a dependent or independent student

Dependent Students

First Year:

Total: $5,500
Maximum subsidized: $3,500

Second Year:

Total: $6,500
Maximum subsidized: $4,500

Third Year and Beyond:

Total: $7,500
Maximum subsidized: $5,500

Maximum Total Debt:

Total: $31,000
Maximum subsidized: $23,000

Independent Students

First Year:

Total: $9,500
Maximum subsidized: $3,500

Second Year:

Total: $10,500
Maximum subsidized: $4,500

Third Year and Beyond:

Total: $12,500
Maximum subsidized: $5,500

Maximum Total Debt:

Undergraduate: $57,000 (max $23,000 subsidized)
Graduate: $20,500 unsubsidized per year
Total graduate debt limit: $138,500 (max $65,000 subsidized)

Note: Some exceptions exist for health profession programs. Check with your school for eligibility.

Federal Perkins Loan

Available to students with severe financial need
Available to undergraduate or graduate students
5% fixed interest rate
No loan origination fee
Not available at all colleges

Parent Loans (PLUS)

Available to parents or independent students
Flexible repayment options
Current interest rate: 6.84%
Interest accrues immediately
4.272% loan fee

Do I Need a Cosigner?

Most federal loans: No cosigner needed
Direct PLUS Loan: May need cosigner/endorser
Private loans: Usually require cosigner
Good credit cosigner can help get better rates

Private Lenders

Alternative to federal loans
May be suggested in financial aid packages
You don’t have to accept any loans
Shop around for best rates
Understand terms and expected payments

Private vs. Federal Loans

Undergraduate students: Federal loans usually better
Graduate students: Private loans may offer better rates
Consider refinancing with private lenders after graduation

Make Sure You Understand Total Debt Loads

While it can be scary to face debt amounts while pursuing your education, it’s crucial to understand your total borrowing:

$6,000 per year becomes $24,000 over four years (plus interest)
Track borrowing amounts and expected payments
Use the government’s Repayment Estimator
Avoid over-borrowing that could impact post-graduation lifestyle

Remember: Your education is an investment, but make sure you’re investing wisely and understand the long-term implications of your borrowing decisions.