Student Undergraduate Loans

Stafford & PLUS Loans

These loans are the most common ones and are for undergraduate students. There are two types: subsidized loans, for which the government pays the interest while you are in college; and unsubsidized loans, for which you are responsible for paying all the interest on the loans, during college and after.

You may receive both types of loans at the same time. The U.S. Department of Education and the loan guarantor charge an origination fee for both subsidized and unsubsidized Stafford Loans. To receive loan funds, you must be enrolled at least as a half-time student.

  • Subsidized Stafford Loans are awarded based on demonstrated financial need. The federal government pays the interest while you are in college and during the six-month grace period after you graduated, leave school, or enrol as less than a half-time student. The government also pays your interest costs during deferment. A student will be obligated an origination fee on each subsidized Federal Stafford Loan he or she receives. To qualify, you must meet all the requirements for federal student financial aid and have your eligibility for a Pell Grant determined. Repayment terms may vary from lender to lender.
  • Unsubsidized Stafford Loans are for all eligible students, regardless of their income and assets. You must meet the same requirements as those for the subsidized Stafford Loan, except for demonstrating financial need. You are responsible for paying all the interest on the loan, but you can allow it to accumulate while you’re in college and during the grace period. If you do, the interest will be added to the amount you borrowed when repayment begins and future interest will be based on the higher loan amount. The maximum interest rate on an unsubsidized Federal Stafford Loan is 8.25%. A student will be obligated an origination fee on each unsubsidized Federal Stafford Loan he or she receives.

The Federal Parent Loan for Undergraduate Students (PLUS Loans) enables parents or stepparents to borrow up to the total cost of their dependent child’s education, minus any other aid he or she may receive. PLUS Loans are for undergraduate study only and are not based on your family’s income or assets. These loans are always unsubsidized. The maximum interest rate for Federal PLUS Loans is 9%. The interest rates charged on these loans may change, so the student must check with a lender or the school for the current rate. Parents will be obligated for an origination fee on each Federal PLUS Loan they receive. Federal PLUS Loan borrowing is limited to parents with a favourable credit history.

Consider the following features and benefits of a Stafford Loan:

  • No payments are required while you are in school at least half-time
  • A six-month payment-free grace period immediately following graduation or separation from school
  • Flexible repayment options, including consolidation
  • No prepayment penalty
  • No credit check is required
  • Interest may be tax-deductible.
  • Borrowers may defer their payments for a number of reasons, such as grad school or military service.

Repayment Term

The standard repayment term is for ten years. However, depending on the total amount borrowed, the repayment term can possibly be extended up to 25 years . If justifying conditions develop during repayment, a borrower may demand leniency (temporarily stop paying). During leniency, the borrower does not have to make expenses, but interest continues to accumulate and gets added to the primary if no payments of interest are made.

The Federal Family Education Loan Program offers long term loans, which allow students to postpone paying for a portion of their school expenses until after they graduate or leave school. Repayment begins six months after completion or withdrawal from the degree program.

There are three types of student loans for undergraduate students.

Federal Perkins Loans:

  • Fixed 5% interest rate.
  • Maximum award of $4,000 per undergraduate year.
  • School-awarded.
  • Very limited availability.

Federal Stafford Loans:

  • Are usually borrowed through private lenders.
  • You must be enrolled at least half-time.
  • Interest rate is fixed at 6.8%.
  • Award limits are based on your year in school and your dependency status.
  • Repayment normally starts six months after leaving school (or attending less than half-time).
  • There are two types of Stafford Loans – subsidized (for which you must demonstrate financial need and the interest is paid by the federal government while you are in school) and unsubsidized (which is not based on need, but you are responsible for all the interest that accrues).

Private Loans:

  • Are borrowed through private entities, banks, credit unions or lending companies
  • Interest rates can vary
  • Can borrow up to the total cost of attendance, less other financial aid
  • Interest can be capitalized more often (meaning, added to the loan principal), increasing the amount of money you ultimately are charged for borrowing.
  • Approval and terms for private loans are based on credit history. If your rating is bad or non-existent, you might need a co-signer to qualify. Poor or minimal credit may also result in a higher interest rate on your loan.
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