Educational Loans: Things You Need to Know

Steps to Applying for Loans
To be eligible for the optimum amount of financial aid, including loans:

• File a Free Application for Federal Student Aid (FAFSA) online (http://www.fafsa.ed.gov/) as soon as possible after January 1 for the academic year you plan to attend school (for Fall 2009 - Spring 2010 school year, apply as soon as possible after January 1, 2009)
• Submit any additional paperwork your school requires to complete your financial aid file by the appropriate deadlines
• Review and submit your offer of financial aid, including any loan paperwork for a Perkins Loan or Stafford Loan

What is Financial Need?
Both Perkins Loans and subsidized Stafford Loans are based on financial need. Financial need is determined by two factors:

• Expected Family Contribution (EFC), which is the amount your family is expected to contribute to your education each year. It is calculated by the information you submit on the FAFSA
• Cost of Attendance, which is the amount your school determines it costs to attend their institution

Using the formula Cost of Attendance minus EFC = Need for Aid, each school determines your eligibility for different types of aid at their institution, based on their funding resources and awarding policies.

Is Perkins or Stafford Loan the Best Choice?
A Perkins Loan is generally the best loan deal because it offers a 5% interest rate, 9-month grace period, and more options for loan forgiveness or cancellation. You do not have to pay interest during in-school periods, your grace period, and any authorized deferment periods.

The Perkins Loan is funded by the federal government and awarded and administered by the school. Perkins Loans are usually awarded to the neediest students and currently have an annual limit of $4000 for undergraduates and $6000 for graduates with a maximum cumulative undergraduate limit of $20,000 and a graduate limit of $40,000 (including loans borrowed at the undergraduate level).
Note: Annual and cumulative loans limits are projected to increase for the 2009-10 academic year.

Stafford Loans--borrowed either through a private lender via the Federal Family Education Loan [FFEL] program or through the Direct Loan program at your school in which the federal government is the lender--carry a higher interest rate and feature a 6-month grace period.

• Subsidized Stafford Loans are based on need and you do not have to pay interest during in-school periods, through your grace period, and during any authorized deferment periods.
• Unsubsidized Stafford Loans are not based on need and you are responsible for interest payments from the time the loan is disbursed.

Stafford Loans place limits on the amount you can borrow in an academic year as well as the total you can borrow over the course of your academic career.

What Now?
Some suggestions when it comes to applying for aid and loans:

• Reapply each year
• Keep on top of deadlines so you get the aid to which you're entitled
• Apply early so your money is available when you need it
• Borrow only the amount you need; you'll be glad down the road when it comes time to repay your loans
• Make sure you understand your rights and responsibilities

And, finally, if you have questions, ask someone. Your financial aid office should be able to help.

Source:
The Guide to Federal Student Aid | 2009-10

About the Author:
Judi Sandall is a graduate of the State University of New York, with a BA in English Literature. She is a technical writer and editor who worked in student financial aid for over 20 years.