College Loans - Federal Unsubsidized Stafford Loans

By: K.W. Abbott

Unsubsidized Stafford Loans are not need-based loans.  If there is no financial need, the student can still receive an Unsubsidized Stafford Loan (subject to the Subsidized Stafford Loan limits).  A student must file a financial aid appication to receive this loan.  The interest ratre and repayment terms are the same as the Federal Subsidized Loan.  However, the interest is not subsidized by the federal government duing the time the student is in college.  Therefore, these loans cannot be considered financial aid when comparing financial aid award letters from various colleges.  However, repayment of these loans will not start until six months after the student leaves college.

In a situation where a student does not qualify for need-based financial aid because the Estimated Family Contribution (EFC) is greater than the Cost of Attendance (COA), it may be more beneficial for the student to borrow using an Unsubsidized Stafford Loan rather than for the parents to borrow using a PLUS Loan. There may be a greater probabiity that the student will be able to deduct the interest as student loan interest from the Unsubsidized Stafford Loan than the parents will be able to deduct the interest on a PLUS Loan.

When the student leaves college and claims himself/herself on the student's tax retune, the income wil probably be lower than the income phase-out limits for deducting the student loan interest,  The student can then deduct the interest paid on the Unsubsidized Stafford Loan.

Since the interest accrues during college years and repayment to is deferred until after college years for an Unsubsidized Stafford Loan, the student will be be eligible for a substantial student loan interest deduction.  The parents' income level may be greater than the interest deduction phase-out limit ($150,000 for married) and therefore, they will be unable to deduct any of the interest for the PLUS loan on their tax return.

                                                               National Institute of Certified College Planners, LLC 

College Loans - Federal PLUS Loans

(Parents' Loans for Undergraduate Students)

By: K.W. Abbott

Federal PLUS Loans are not need-based.  The borrower pays the interest and repayment begins six months after the student leaves college.  However, if the parent is enrolled in college on at least a half-time basis, the repayment may be deferred while the parent is in college.

The interest rate on Federal PLUS Loans is fixed with an upper limit of 7.9%.  If a parent is not ceredit worthy and cannot obtain a PLUS Loan, the student can borow an additional $4,000 per year in Unsubsidized Stafford Loans for the first year of college and $5,000 for the second, third, fourth and fifth years of college (the limit for an indepemdent student).  The amount of a PLUS Loan that a parent can borrow is limited to the Cost of Attendance minus the financial aid award offered to the student.  The amount of financial aid offered to the student does not include Federal Perkins Loan or college work-study funds that the college determines the student has declined.  In other words, the amount of declined Perkins Loan or work-study does not count as part of the student's finanical aid offer when determing eligibility for the PLUS Loan.

These are signature loans in the parent's name.  If the signatory parent (only one parent must sign for the loan) dies or becomes disabled before the loan is repaid, the remaining loan principle balance is forgiven.  PLUS Loans may be consolidated into one loan and repaid over a period of up to 30 years. 

                                                          National Institute of Certified College Planners, LLC

College Loans - Federal Perkins Loans

Federal Perkins Loans are low interest need-based loans (the rate is fixed at 5%) ranging up to $5,500.00 per year.  The interest is subsidized by the federal government until six months after the student leaves college.  The college determines which students will receive this loan and the amount of the loan. These loans are in the student's name and the student will be entitled to the student loan interest tax deduction.


                                                                National Institute of Certified College Planners, LLC

College Loans  - Federal Subsidized Stafford Loans

By: K.W. Abbott

Federal Subsidized Stafford Loans are fixed rate, need-based loans.  A student can borrow $3,500.00 for their freshman year, $4,500.00 for their sophomore year and $5,500.00 for their junior, year, senior and higher years. The interest is paid (subsidized) by the federal government until 6 months after the student leaves college.  Stafford loans carry both life and disability insurance on the student.  If the student dies or becomes disabled the loan balance is forgiven.  These loans are in the student's name and the student will be entitled to the student loan interest tax deduction.  If the loan is eligible to be bought by Sallie Mae and the student makes the first 48 payments on time, the interest rate will drop 2%.



                                                              National Institute of Certified College Planners, LLC