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					    NEED TO BORROW FOR COLLEGE?
           FEDERAL OR PRIVATE LOAN
                WHICH IS BEST

Will you need to borrow money to attend college? If so, look at borrowing from
the federal government first! Federal loans normally will provide lower interest
rates and repayment options are much more flexible than other types of private
loans.

This publication will outline the differences between federal and private education
loans. We will outline the different types of federal loans and the loan limits that
can be borrowed.

What is a federal student loan?

A federal student loan is a loan that is provided through the federal government
and allows students and their parents to borrow money to help pay for college.
They usually have low interest rates and offer attractive repayment terms,
benefits and options. Normally, repayment of a subsidized federal loan
(described below) does not begin until after the student leaves school.
Unsubsidized student loans must be paid while the student is attending college
(unless the loan is deferred). Proceeds of the funds can be used to pay for
tuition and fees, room and board, books, supplies and transportation.

Federal student loans are distributed by the federal government and sent directly
to the college that the student is attending. Once the college receives the funds
they will credit the loan money toward the students educational costs.

What is a private student loan?

A private student loans are nonfederal loans that are used to pay for college
expenses and are normally distributed by a bank or credit union. Private student
loans can be variable or have variable interest rates. The interest rate charged
normally is higher than federal student loans and many times when a student
borrows from private lenders, the lending institution will require a credit check
and a co-signer could be required.

Are a federal student loans better than private loans?
Normally, federal student loans have many favorable benefits over private
college loans. Federal student loans normally have a fixed interest rates, while
most private loans do not. Federal student loans can provide income-based
repayment plans, while private loans normally will not provide this option. In
some situations federal student loans will provide loan forgiveness and
deferment (postponement) options, while private loans will not provide
forgiveness, but some could provide postponement or deferment in some
situations. Therefore, federal student loans normally should be the first option if
the student needs to borrow funds for college.

How much can a student borrow in federal student loans?

Students that are freshman in college can borrow up to $5,500, which $3,500
could be subsidized (federal government pays the interest) and $2,000
unsubsidized (student is responsible for the interest that is due). If the
student has NO financial need, the full $5,500 will be Unsubsized.

Students that are sophomores in college can borrow up to $6,500, which $4,500
could be subsidized (federal government pays the interest) and $2,000
unsubsidized (student is responsible for the interest that is due). If the
student has NO financial need, the full $6,500 will be Unsubsized.

Students that are juniors and/or seniors in college can borrow up to $7,500,
which $5,500 could be subsidized (federal government pays the interest) and
$2,000 unsubsidized (student is responsible for the interest that is due). If
the student has NO financial need, the full $7,500 will be Unsubsized.

A student could qualify for an additional $4,000 if they go to college beyond four-
years. The maximum undergraduate borrowing limit is $31.000.

If the student shows more need than what is available in federal borrowing limits
and do not receive any other form of financial aid, parents can potentially qualify
for a PLUS loan (Parent Loan for Undergraduate Student). Under the PLUS loan
rules, parents can borrow an amount of money to pay for college expenses up to
the total cost of attending minus other forms of financial aid that the student may
receive.

What are the different types of student loans?

There are two types of Federal Direct Stafford loans: Subsidized and
Unsubsidized.

      Subsidized Stafford loans provide low interest rates and are
       available to students who demonstrate financial need based on
       income and other information provided on the FAFSA. A credit check
       is not required to receive these loans. The federal government pays
       the interest on these loans until six months after the student is no
       longer enrolled in school at least half-time.
      Unsubsidized Stafford loans provide low interest rates and are
       available to all students regardless of financial need (although the
       FAFSA still must be filed). A credit check is not required to receive
       these loans. The student is responsible for the interest, which may
       be paid while the student is in school or accrued and then added to
       the principal balance when the student enters repayment, which
       occurs six months after the student is no longer enrolled in school at
       least half-time.
      Plus loans are low interest loans that parents can obtain to help pay
       the cost of education for their children. PLUS loans require a credit
       check, however the credit check is not as stringent as applying for
       other forms of loans. Repayment of PLUS loans begins immediately
       once the loan is distributed. Parents of dependent students may be
       able to defer repayment of their PLUS loans until after the student is
       no longer enrolled in school at least half-time, although interest will
       continue to accrue.
      Consolidation loans allow student or parent borrowers to combine
       multiple federal student loans into one loan with one monthly
       payment. A federal consolidation loan cannot include private loans.
       However, some private lenders may offer consolidation loans.
       Borrowers should be aware that they will lose their federal borrower
       benefits if they consolidate their federal student loan into a private
       consolidation loan. Borrowers should always exhaust federal
       student loan options first before considering a private consolidation
       loan.

What does a student need to do to get a federal student loan?

To get a federal student loan, the Free Application for Federal Student Aid
(FAFSA) must be completed. This form can be completed online at
www.fafsa.gov or the family can mail in a paper application. Once the FAFSA is
processed, the schools the student has identified on the FAFSA will receive the
information. The school will then tell the student how much financial aid is
available, including grants, scholarships, work opportunities and federal student
loans. Should the student choose a federal student loan, the college will provide
the student with instructions on how to apply.

Completing the FAFSA could be complicated, so why should the student complete a
FAFSA when the private loan application process may be easier?

Yes, completing the FAFSA could be complicated and sometimes very
confusing. However, as we have mentioned earlier, federal student loans usually
have lower interest rates and better repayment terms and options than private
student loans may not provide. Also, by completing the FAFSA, colleges will use
the information on the FAFSA to determine eligibility for other types of financial
aid provided by the federal government, from your state, or from the school itself.
This aid can include grants, scholarships and work opportunities.

Conclusion

Before borrowing any money for college, the student and parents need to take
two-step back and think about the disadvantages of going into debt. There are
other ways of paying for college, other than borrowing. Borrowing money to pay
for college expenses should be the LAST option taken by the student and the
parents.

Yes, investing into a college education is normally a good investment, but not if
the cost of the education is going to affect the financial security of the student
and their parents due to the debt that could occurred.

				
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