The Secrets to Finding a Student Loan

The credit crunch and debacle on Wall Street have wiped out those easy-peasy $40,000 college loans that used to be all over late-night TV. And the feds are considering a dramatic consolidation of the educational lending industry that could reduce options still further. But no matter what happens in Washington or on Wall Street this year or next, most students will still be able to borrow enough to cover the bulk of tuition at their local public university at a reasonable cost from the feds.

People Who Read This Also Read
More Financial Aid for Adults Who Want to Return to College
6 Tips to Help You Get More Financial Aid
10 Least Competitive Job Markets
10 Things You Didn't Know About Swine Flu
How to Find Money for College in a Recession

One of the most surprising results of the turmoil in the lending markets is how students' loan options have diverged from parents'. Here are the key things both should bear in mind:

DEALS FOR STUDENTS. Students should always start with the feds. The first step: filling out the FAFSA form, the Free Application for Federal Student Aid.

All full-time students who complete a FAFSA and a federal loan agreement provided by their school's financial aid office can borrow at least $5,500 a year through the Stafford student loan program. Students who are at least 24 or whose parents have bad credit can get Stafford loans of up to $9,500 to $12,500, depending on their year. This fall, Staffords will charge no more than 6.8 percent a year in interest plus a 1.5 percent upfront fee, for an average annual percentage rate of 7.1 percent.

Low-income students generally qualify for better deals. Some will receive federal Perkins loans, which charge no interest while students are in school and just 5 percent after they leave. And most needy students will receive "subsidized" Stafford loans, which for the academic year starting this September will charge no interest while students are in school and 5.6 percent after they leave.

Need more? Uh-oh! Dropping out of college is usually far more expensive, in the long run, than sticking it out and graduating to qualify for better jobs, so it can pay to borrow a little extra to make it to commencement. The problem is that students who need more than the government will lend have few good choices, says Greg McBride, a senior financial analyst for Bankrate.com. Here are some possibilities:

Charities and colleges. A few charities, such as Maryland's Central Scholarship Bureau and the Scholarship Foundation of St. Louis, award interest-free loans to a handful of needy students each year. And some colleges, including the University of Minnesota-Twin Cities, are trying to un-crunch credit by making loans themselves. But beware: Lauren Asher, acting president of the Institute for College Access and Success, warns that while many of these are good deals, students shouldn't automatically accept every loan they are offered.


Source