Loans

Unlike grants, loans must be repaid. The federal government offers students and their parents loans for education. These loans are available at low interest rates, and you can defer making any payments until after you finish school. Also, if you are unable to land a job immediately after you graduate, you can defer payment until you find employment.

If you can show financial need, you may qualify for a subsidized loan, which means the government will pay the interest on your loan while you are at business school. Even if you can’t show need, you are still eligible for an unsubsidized loan. You can defer making payments on the loan while you are at school by capitalizing the interest. This means that you add interest to the loan payments. It will increase the size and cost of your loan, but you may still find it helpful during your years at school. The cap for federal loans varies, but it may be enough to cover your tuition, housing, and other expenses.

You can apply for a loan online at www.fafsa.ed.gov, or you can do so in person at your business school’s counseling office or at your bank. Bank-supplied student loans have different interest rates and conditions than federal loans. Also, when the bank loans you the money, the federal government guarantees to the bank that the loan will be paid back. If you can qualify for a federal loan, it’s a better option than a bank loan, because the terms are better.

There are a few types of education loans, and they offer a variety of pros and cons.

Stafford Loan
The federal government provides low-interest loans to students, and you do not need to provide collateral or have your credit checked in order to obtain one. The main federal student loan is the Stafford Loan. There are two types of Stafford Loans. The first is the Federal Family Education Loan Program (FFELP), which is offered by private lenders such as banks or credit unions.

The second type is the Federal Direct Student Loan Program (FDSLP) loan. This loan is provided by the school you attend after the federal government provides the money to the school.

If you are able to demonstrate financial need, you may qualify for a subsidized Stafford Loan. This means that the government pays all the interest while you’re attending business school.

If you can’t demonstrate financial need, you can receive an unsubsidized Stafford Loan. Any student can qualify for this type of loan. With an unsubsidized loan, you are required to make payments while you’re in business school. However, you can defer the payments until after you graduate. You do this by capitalizing the interest, or adding interest payments to the loan balance.

You are required to start repaying your Stafford Loan six months after you graduate or drop below half-time enrollment. Usually, you have ten years to pay off the loan, but you can get extensions and alternate repayment terms.

There are many factors that determine how much money you can borrow with a Stafford Loan. To find out more about Stafford Loans, including loan limits, or to apply for one, visit http://studentaid.ed.gov .

Perkins Loan
If you can demonstrate great financial need, you may qualify for a Perkins Loan. This loan is subsidized, and you have a nine-month grace period before repayment starts. There are no loan fees, and the interest rate is only 5 percent.

The business school you attend decides how much money you may receive. You can get a maximum of $5,500 per year as an undergraduate, or $8,000 annually as a graduate student. To find out more, visit http://studentaid.ed.gov.

Other Types of Loans
If you cannot meet your need entirely with either a Perkins or Stafford Loan, other options are available. Your parents can take out a federal loan to help cover your expenses. This loan is called the Parent Loan for Undergraduate Students (PLUS). Your parents, and not you, are responsible for paying off a PLUS.

You can also apply for a Private Education Loan, or Alternative Education Loan. Private lenders like banks and credit unions offer these loans. How much you can receive is based on your credit score. Usually, you need at least a credit score of 650 to qualify. The interest rates on these loans are generally higher than federal loan rates, and they are usually variable.

Since the interest rates and forgiveness options are better with federal loans than with private loans, it’s always better to apply for a federal loan first and save the private loans as a last resort. You can apply by filling out a FAFSA (Free Application for Federal Student Aid) through http://www.fafsa.ed.gov/.

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