Key Sources of Financial Aid – Good Sources
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                            Lower Interest Subsidized Loans


Subsidized Loans 

Some educational loans have a special feature called an interest subsidy. Instead of the usual schedule under which the borrower begins repayment of interest and principal immediately, subsidized loans are arranged in such a way that the borrower pays no interest on the loan until entering the repayment period, which usually begins after schooling is completed. During the schooling years, a third party, usually the federal government pays the interest. The Federal Government pays the interest until the student enters repayment. The federal government pays the interest that accrues on subsidized loans during the student's in-school, grace, deferment, and if applicable post-deferment grace periods. 

In the case of certain private programs, interest is deferred or waived by the lender or paid by a private sponsor, until the borrower begins to repay the loan. Subsidized loans offer a very definite advantage to the student borrower, and the longer the period between the disbursement of the loan and the beginning of payback, the greater the benefit of the subsidized loan. 

Both subsidized and unsubsidized educational loan programs have two features which lenders make available only to student borrowers-grace periods and deferment provisions.

Federal Stafford Loans 

These federal student loans are usually the least expensive loan option. Depending on their year in college, dependent undergraduate students may borrow amounts ranging from $2,625 to $5,500 a year to finance their studies. The Stafford loan interest rate is variable but cannot exceed 8.25 percent and interest rates are adjusted each July 1. Repayment is not required until six months after the student leaves school. Depending on a family’s eligibility for financial aid, the student may qualify for a subsidized Stafford loan, on which the federal government pays the interest while the student attends college, during the six-month, post-school grace period, or during periods of authorized deferment. Unsubsidized Stafford loans are available without regard to financial need, but there is no federal interest subsidy. Interest paid on Stafford loans may qualify for the federal education loan interest tax deduction.


Federal Perkins Loans 

A need-based federal loan for students with exceptional financial need these loans are awarded by participating schools at 5% interest rate for undergraduates and graduate students. Need is determined by a federal formula using the information provided on the FAFSA. Loans are made with government funds by the school serving as the lender. There are no insurance premiums or origination fees for Perkins loans. 

Undergraduate students can borrow up to $4,000 for each year of study and up to $6,000 for graduate students. In total, eligible students can borrow up to $20,000 for undergraduate study, and up to $40,000 for graduate and professional study. Your school will either pay you directly or credit your account. Loans are disbursed in at least two payments during the academic year, unless the total loan is $500 or less, in which case the loan may be made in a single payment. 

Perkins loan funds are usually very limited; so few students receive the maximum award amounts. You pay no interest on Perkins loans while enrolled in school at least half time. Perkins loan borrowers must begin repaying their loan nine months after they graduate, leave school or enroll less than half time. Depending on how much is borrowed, repayment may be up to 10 years. Late fees are accessed due to late, missed or less than full payments when due. 



Consolidation (Loans) 

Although not an education loan, Federal Consolidation loans are a good source of funds used to pay for college. Consolidation loans are most often best used once the borrower enters repayment. This loan is an available option for the borrower to combine various loans into a single loan with a new more manageable repayment schedule and interest rate and an extended repayment term from 10 to 30 years, depending on the total student-loan debt. 

The Consolidation loan, combines several student or parent loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. Married borrowers may consolidate their individual loans under a single payment schedule. Consolidation loans are available for most federal loans, including FFELP (Stafford, PLUS, and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans, and Direct loans. Some lenders offer consolidation loans for private loans as well. . However, by extending the term of a loan the total amount of interest paid is increased unless you continue to pay the same monthly payment as before. 

The fixed interest rate on consolidation loans is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a percent, but can be no higher than 8.25%. Some graduate students have found it necessary to consolidate their educational loans when applying for a mortgage on a house. 

The benefits of consolidation differ for each borrower. Get all the facts first before opting for a consolidation loan. You may be relinquishing your deferment or repayment options. Your signature on the consolidation application and promissory note obligates you to the terms of the new loan. You don't have to consolidate all your loans, but any loans you list on the application will be consolidated. To learn more, consult with your lender, financial advisor and financial aid office.