Should I seriously consider a federal student loan?
Yes, but understand that you are taking out a loan that will need to be repaid. But if you take the approach that borrowing a student loan is an investment in your education that will pay you big dividends (college grads often make $1 million more over their lifetime than non-college grads) and you borrow only the amount you need, loans can work for you.
The federal government offers two interest-free loans: the Federal Perkins Loan and the Federal Direct Subsidized Loan. But they are interest-free only while you are enrolled in college and attending at least part time. You qualify for these if you file the FAFSA and you are deemed to have financial need. If you don’t have financial need, you can still borrow the Federal Direct Unsubsidized Loan, but it won’t be interest-free. The interest rate on the Unsubsidized Loan (and the Subsidized Loan when you are no longer enrolled in college) is set by the federal government and is currently 4.66 percent. The rate will change to 4.29 percent effective October 1, 2015. The interest rate in repayment on the Perkins is 5 percent, but these funds are limited. The federal government also sets lifetime limits on how much you can borrow overall.
If my financial aid does not cover all of what I owe or what I will need, what other options can I consider?
Assuming your family doesn’t have any circumstances that are impacting their ability to help pay for college (if so, see “Extenuating Circumstances” below), then we would suggest you consider the following:
Payment Plans exempt borrowers from the monthly finance charge of 1.5 percent and may result in smaller loans. If your parents feel they can make some level of monthly payment (even if it is not the entire amount due), they should consider enrolling in a payment plan. It is always better to pay as you go rather than borrowing funds, even if they are available. AU’s payment plan is administered through a company called Tuition Management Systems (TMS) and usually requires four or five payments per semester. We are notified when you enroll, and the amount you set up under a payment plan will be reflected on your monthly student bill. These plans are interest-free, but there is an annual enrollment fee. TMS will bill you monthly and forward your payment to Anderson University. Contact TMS directly at (800) 722-4867 (toll free) or online at www.afford.com/anderson.
A PLUS Loan is a federally sponsored loan that your parents receive. The amount of their eligibility for the PLUS Loan will show on your award letter. This is not the amount we are suggesting they borrow; it is the maximum amount they can borrow. Your parents can request a PLUS loan online. A couple of things to consider:
- It is your parents’ loan, not yours. They are the ones legally responsible to repay the loan.
- The current interest rate is set by the federal government and is currently a fixed rate of 7.21 percent. The rate will change to 6.84 percent effective October 1, 2015.
- Payments are not automatically deferred while you are in school like your student loans, but the loan can be deferred upon request. Interest continues to accrue, however.
- Fees, currently 4.292 percent, are deducted from the amount borrowed. PLUS fees will change to 4.272 percent effective October 1, 2015.
- If your parents are denied the PLUS Loan (it does not take excellent credit to be approved, just the absence of “adverse credit”), then you automatically become eligible for an additional $4,000-$5,000 in the Federal Direct Unsubsidized Loan, depending on your grade level. If you need to borrow more than this additional amount, talk with your counselor to review additional options that are more specific to your situation.
Payment Plan plus a PLUS. To help lessen the amount your parents may otherwise consider under a PLUS loan, they might wish to consider combining a payment plan along with a PLUS loan. TMS has an online tool called “Borrow Smart” that can calculate the optimal amount combining a payment plan and a PLUS loan that stays within your parents’ budget. They can also do this over the phone by calling TMS.
Private Student Loans. The good and bad news is that there are lots of lenders willing to lend you money for college. Here are a couple of things you should know about private loans:
- Consider other less costly options or part-time employment first, and then borrow only the amount that you absolutely need.
- It is unlikely that you will qualify for a private student loan in your name only as approval is based solely on credit. Therefore one of your parents (or someone else) will have to serve as a co-signer on the loan. Interest rates are not usually fixed and will vary based on your credit score and market conditions.
We understand that there are many situations that may affect your family’s ability to pay for your college education. The more common ones are loss of or change in income, divorce, separation, death of a parent, or high medical expenses. If you fit one of these, request a review of your financial aid by going to our website and selecting “Request a Review.” Otherwise, call your counselor and talk over your situation. While you will have to provide us with appropriate documentation, there is a good chance we will be able to review your financial aid request based on your special circumstance.