Ways to Pay for College, Part 1

 In FInancial Aid, Freshman Year, General, Loans, Parent PLUS Loan, Stafford Loan, Subsidized Loan, Unsubsidized Loan

For seniors in high school families are nearing the final months before college starts. In our last post, we discussed getting award letters and figuring out how to decode what each school is actually offering your student. This blog is the next step in your process—figuring out the best way(s) to pay for the next four years of higher education. It can seem daunting at first, but our team has started you off by cutting up the information. In our first segment you will find short definitions of popular loans. We’re also going to break down the positives and negatives of each option. So don’t worry—we’re here to help!

Keep checking into the blog for our part 2– savings accounts!

For families, there can be a lot of ways to pay for college floating around.

Direct Federal Loans (Stafford Loans) (1)

The Breakdown

  • Subsidized and unsubsidized, depending on household income
  • Colleges determine the amount you can borrow
  • Subsidized Stafford Loans are given based on need
    • Government pays interest while student is in school, in deferment, and during grace period before repayment
  • Unsubsidized Stafford Loans are not based on income and not all students are eligible for the maximum loan amount
    • Eligibility determined by student’s year in school, other financial awards, and cost of attendance
    • Students responsible for all interest that accumulates while in school, in deferment, and during grace period
  • Students can take out both subsidized and unsubsidized if they do not exceed yearly borrowing limits

The Positives

When comparing the two options, subsidized have a little more going for them. As stated above, the government will pay interest rates for a time. This can continue through the first 6 months after a student graduates and through a deferment of payment on the loan. An unsubsidized loan will not offer these perks. But anyone is eligible for an unsubsidized loan. The interest rates for these two loan options are typically the same. There is a 6-month grace period before paying either loan, which can be a great help to a new graduate. (2)

The Negatives

Subsidized loans will have a limit on how much you can take out per year. They are also only eligible for those who require financial aid. There are other associate fees that come with both loans. The rate is relative to the amount your loan covers, but make sure you are aware of all hidden fees before making a commitment. (2)

 

Parent Loan for Undergraduate Students (PLUS)

The Breakdown

  • For parents of dependent students. Parents are responsible for repaying back the loan
  • Affordable, low interest rates, & insured by federal government
  • Borrower cannot have an adverse credit history
  • Interest rate of 7.0%
  • Borrowing Limits: Maximum amount borrowed cannot exceed total cost of attendance minus financial aid received

The Positives

Since this loan is specifically for parents, your student will not be strapped down with loans when they graduate. This is a very real struggle for today’s generation. Loans can not only be used for tuition and COA, but any extra money will be passed back to families to use towards other school supplies. Families have the option to defer payments, but must be aware of their specific situation. (3)

The Negatives

The interest rate and loan fee are significantly higher than Stafford loans. Families must be aware of when their payments on the loans will start. While deferment is allowed, you will most likely need to request this option, otherwise payments will be required as soon as the loan is used. Since this loan is specifically for parents, payments cannot be passed off to students. (3)

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Direct Loan interest rates for the 2017-2018 academic year.  These rates are for federal student and parent loans disbursed after June 30 2017 and before July 1, 2018.

Loan Type Borrower Type Fixed

Interest

Rate

 
 
Direct
Subsidized
Loans Undergraduate
Students 4.45%  
Direct
Unsubsidized
Loans Undergraduate
Students 4.45%  
Direct
Unsubsidized
Loans Graduate/Professional
Students 6.00%  
Direct PLUS
Loans Parents of Dependent
Undergraduate
Students and
Graduate/Professional
Students 7.00%  

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Citations:

(1) https://www.scholarships.com/financial-aid/student-loans/

(2) https://studentaid.ed.gov/sa/types/loans/subsidized-unsubsidized#subsidized-vs-unsubsidized

(3) https://studentaid.ed.gov/sa/types/loans/plus

Stuart Canzeri
Stuart is known as one on the industry experts in college funding and college financial planning. He serves as a registered fiduciary for his clients and has been in the financial and college planning arena for a combined 18 years. Stuart received a Bachelor of Arts in Communications from Tulane University, a MBA from Mercer University and completed his Certified Financial Planner certification from the University of Georgia’s Terry School of Business. He is Co-founder of Peachtree Financial Group, a boutique registered investment advisory firm and Managing Partner of Peachtree College Planning. He was appointed twice as a Commissioner at the Fulton County Housing Authority and still serves today.
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