Paying For School
Federal loans are not keeping up with the rising costs of education.
- The federal student loan limit didn't change between 1992 and July 2007.
In the mean time the national average of 4 year public tuition has increased
by nearly 70%. (Nellie Mae)
- The freshman and sophomore loan amounts finally increased in July 2007 to
$3500 and $4500 respectively
- Alternative loan volume has grown by over 1,000% from the 95-96
school year to 05-06 school year. (CollegeBoard)¹
¹ Sources: 2005 NASFAA conference presentation by Vicky Powers,
Tonya Drain & Stephanie Forest; 2006 College Board survey.
Apples & Oranges – a comparison of federal and alternative loans
| Federal Loans |
Private / Alternative Loans |
| Federal guarantee to lender |
Lender assumes all risk; no federal backing |
| Same interest rates for all borrowers |
Interest rates and fees vary |
| No credit check or collateral |
Credit check and collateral needed |
| Grade level & aggregate limits |
Yearly limits not set by grade (higher limits) |
| 10-year standard repay |
Longer repayment periods based on amount |
| Citizenship required |
Loans available to citizens and non-citizens |
| Discharged for death / disability & forgiveness programs |
Co-borrower is responsible upon death / disability of primary |
School requirements
- Entrance counseling required
- Exit counseling required
- Return to Title IV Funds required
- NLSDS updates required
- Default management required
|
No School requirements |
Growth of Stafford, PLUS, and non-Federal loan dollars
- Good borrowing practices
- Students – even those with approved credit – should seek a co-borrower
- Application process goes smoother when financial documents are in
hand and both student & co-borrower are present
- Don’t wait until the beginning of the semester is closing in!
- Use alternative loans that require school certification. “Direct-to-consumer”
loans often are more expensive and might require immediate repayment.
- Consider an alternative loan that offers combined billing with Stafford,
if applicable w/school process.
- Other good counseling
- Stafford and Alternative loans cannot be consolidated into a federal loan
- Some loans exist that will consolidate the two, but the resulting
loan is a private loan that is subject to a credit check and possibly
fees and/or variable interest rates.
- Federal/state benefits, such as teacher cancellation, nursing cancellation
and armed forces deferments are gone, as are death-disability discharges.
- Useful resources
- www.MyFico.com
– provides credit awareness, credit health tips and
instructions on reading credit reports & fixing errors
- www.AnnualCreditReport.com
– government recognized free credit report service. Available once in a 12-month period to all consumers
- www.BankRate.com
– daily updates on all interest rate indexes
- www.PelaLenders.org
– the PA Education Lenders Assoc website offers a links section for alternative loans
- www.finaid.org
– "the SmartStudent Guide to Financial Aid"