VSAC
The VSAC no-nonsense
guide to
education loans
for families of
undergraduate
students
The straight scoop on undergraduate
education loans — from VSAC, your
trusted college planning advisor
If you’re looking for information about paying for college, you need some-one you can trust. For nearly 50 years, the Vermont Student Assistance Corporation (VSAC) has been that resource, assisting generations of Vermont families on the pathway to college. We’ve put together this guide so you’ll be better informed and prepared to make the college financing choices that are right for your family’s situation.
You have questions …
The challenge of paying for college can seem overwhelming, so it’s not surprising that you may have concerns and questions: What are all my financing options? What makes the most sense for my family? How do I know what a loan will really cost me? Which type of loan is best?
… VSAC has answers
As a public, nonprofit organization, VSAC is dedicated to reducing the cost of financing education for Vermont students — and for students attending Vermont colleges. Our mission is to ensure that your child has the information and financing he or she needs to pursue education or training after high school, whatever that path may be.
We’re on your side
At VSAC, we work for you. We aren’t a large, national financial institution, and we don’t have shareholders or a distant home office that calls the shots.We’re here to help you decide which financing options are best for your situation. There are no tricks, no hidden fine print, and no pressure.
www.vsac.org/studentloans
The Vermont Student Assistance Corporation (VSAC) provides: • outreach and college access programs
• career and education planning information • grants and scholarships for Vermont residents
• private education loans for undergraduates and for graduate/ professional students
• Vermont’s 529 college savings plan (VHEIP — the Vermont Higher Education Investment Plan)
VSAC — your partner on the pathway to college
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Start from the beginning: loan basics
Before we get into loans, you should know that it really is worth the time and energy to apply for grants and scholarships. Even if you don’t think your family will qualify for need-based aid, your child may be eligible for scholarships based on residency, community service, academics, and other criteria.
Take into consideration, too, what savings and income you expect to be able to use toward the college bill each semester, to reduce the amount you’ll owe down the road.
That said, the reality for most families is that their amount in savings, income, grants, and scholarships simply won’t cover college costs for all the years of schooling. If you need additional financing to pay for a college education, you’re not alone. A federal education loan is the place to start.
FEDERAL EDUCATION LOANS
There are three kinds of federal education loans available for undergraduate education — two for students, one for parents.
Student loans:
• Perkins loans of up to $4,000 annually are available to students with exceptional financial need. These loans are made through the college.
• Stafford loans are available to almost all students. A student may borrow $5,500 to $7,500 annually, depending on his or her year in school. (Independent students may borrow even more; see the chart on this page.)
Stafford loans are available through your school. All students are eligible to apply, regardless of financial need.
Subsidized Stafford loans, for students with greater financial need, do not
accrue interest while the student is in school or in a deferment period.
Unsubsidized Stafford loans, available for all students regardless of financial
need, start accruing interest when the loan is disbursed.
Subsidized or not?
Parent loans:
• PLUS loans are available for parents, up to the full remaining cost of attendance. PLUS loans are available through your school. All parents are
eligible to apply, regardless of financial need.
• Credit concerns? If you have a negative credit history that won’t qualify you for a PLUS loan, you may want to apply anyway. If you are denied a parent PLUS loan, your child may be eligible for up to an additional $4,000 or $5,000 in unsubsidized Stafford loans, depending on his or her year in school.
Private loans
Private student loans go by all sorts of brand names, depending upon the lender. These supplemental education loans are made by private lenders, including banks and state-based organizations such as VSAC. Students use these loans to cover college costs that remain after they borrow federal Perkins and Stafford loans, in cases when a parent is not able to or does not choose to borrow a PLUS loan. Private loans do not have the same
terms as the federal Perkins, Stafford, and PLUS loans. Each private
loan lender sets its own terms. Choose your lender wisely, and understand all costs and terms of any loan before you sign. For more information about choosing private loans, go to www.vsac.org/learn.
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In all cases, students should take out Perkins (if offered) and Stafford loans before families look at other education loans.
STAFFORD LOAN LIMITS
Colleges will determine your student’s subsidized and unsubsidized loan amounts, up to the following limits:
Dependent student Independent student, or dependent student whose parent is denied a PLUS loan first year $5,500 $9,500
(up to $3,500 of this amount may be in subsidized loans)
second year $6,500 $10,500
(up to $4,500 of this amount may be in subsidized loans)
remaining years $7,500 $12,500
(up to $5,500 of this amount may be in subsidized loans)
Cumulative
$31,000 for a dependent undergraduate
All Stafford student loans and parent PLUS loans are made through the William D. Ford Federal Direct Loan program of the U.S. Department of Education.
Here’s a snapshot of what to expect:
Submit a FAFSA (Free Application for Federal Student Aid) as the first step in the application process for student loans. The college’s financial aid office will then provide approved Stafford student loan amounts as part of the student’s financial aid award. Sometimes these loans are called Direct Subsidized and Direct Unsubsidized loans. To take out a Stafford loan, the student must accept the loan on the financial aid award notification and complete an online Master Promissory Note (MPN) as directed by the college’s financial aid office. Some colleges show a parent PLUS loan on the financial aid award as well (sometimes this amount is large — the full remaining cost). As a parent, you may choose to apply for all, part, or none of the PLUS loan amount shown on the financial aid award. For help in estimating the monthly payment for different loan amounts, use the loan payment calculator at www.vsac.org/
calculator.
Private education loans for the student are not shown on the financial aid award letter. The student must apply separately through a lender of your choice, usually a bank or state-based organization such as VSAC.
What fees and interest rate will I be charged on federal loans?
The federal government sets the fees and interest rates on Stafford and PLUS loans. See the chart on the right for rates and fees for loans taken out from July 1, 2014, through June 30, 2015.
And visit www.vsac.org/studentloans to learn more about different kinds of education loans.
The lowdown on education loans
Subsidized and unsubsidized Stafford loans for students
Interest rate
• 4.66% fixed interest rate for loans taken out between July 1, 2014, and June 30, 2015
Origination fee
• 1.072% for loans taken out between December 1, 2013, and September 30, 2014 • 1.073% for loans taken out between October 1, 2014, and September 30, 2015
PLUS loans for parents
Interest rate
• 6.41% fixed for the life of the loan
Origination fee
• 4.288% for loans taken out between December 1, 2013, and September 30, 2014 • 4.292% for loans taken out between October 1, 2014, and September 30, 2015
Federal education loan rates & fees
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Federal parent PLUS vs private
student loans: compare the details
Let’s assume that your student has applied for grants and scholarships, and has maxed out Stafford borrowing. If you still need additional loans to finance the remaining college costs, the main choices are a federal PLUS loan (for the parent) or a private education loan (for the student). Here’s how they differ:
Interest rates
Parent PLUS loans have a fixed interest rate, so you know how much you’re going to pay over the life of the loan. Private student loans often have variable interest rates with no maximum on the rate. That could leave your child with a very large debt to pay once the interest is added in. Some non-profit state agencies such as VSAC may offer private student loans with a fixed interest rate that is as low as, or lower than, a parent PLUS loan. But make sure you know exactly what interest rate you are getting before you apply. Some lenders advertise a low rate that few borrowers actually receive.
Fees
Parent PLUS loans have a fee of 4.204% charged when you take out the loan. Lenders offering private student loans can charge what they like, when they like, so your child could end up getting hit with fees all along the way. Ask for a clear explanation of all fees that will be charged. VSAC charges a one-time origination fee, or no origination fee, depending on the credit rating of the cosigner.
Flexible repayment
The parent PLUS loan allows you to defer payment while your child is still in school and offers flexible payment options. While private loans in the student’s name typically allow him or her to defer payment while in school, there may be less flexibility once repayment begins.
Payment responsibility
Although a student takes out a private loan and owes the debt, he or she often needs a parent cosigner in order to qualify. That leaves the parent responsible as well — so the loan affects the parent’s credit rating and may ultimately become the parent’s debt to pay.
Death/disability cancellation
With parent PLUS loans, the debt is cancelled completely if the student or parent borrower dies or the parent borrower becomes permanently disabled. Private loans seldom offer this benefit. Check with your lender before you borrow.
Visit www.vsac.org/compare to learn more about the differences between PLUS loans and private loans.
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If, like many families, you still have a financial gap after comparing the cost of education to the combined amount of student financial aid (grants, schol-arships, and federal student loans) and available family resources, you may decide to look into private student loans. You should consider a private student
loan only after your child has borrowed the maximum in federal Stafford loans.
Private student loans do not have certain benefits of federal education loans, including income-based repayment and deferment. But, if your child has borrowed the maximum in federal Stafford loans and the parent PLUS loan is not an option for your family, or you want to compare rates, a private student loan might be worth considering.
How do you decide which private loan is best? Here’s what to watch out for:
Hidden costs
The more aware you are of what you’re actually paying, the better. It’s all in there by law, but rarely obvious. Private loans can have all sorts of fees, both when the loan is made and when repayment starts, and you may end up being charged higher fees than the ones you saw advertised. With some lenders, you won’t get full disclosure until after you’ve applied, and by then it’s too late. Ask
for a full fee schedule up front. Look for no or low origination fees.
Higher interest rates
If you see a great interest rate on a private loan, chances are it is only for people with an excellent credit rating, so few actually qualify for it. Worse, you might see no interest rates at all, just information on how easy it is to get the loan and how long you can postpone payments. Ask to see what all the possible interest rates are, and figure out where you fit in. Never apply
without knowing what you might pay and determining all possible interest rates.
Interest capitalization
This is a fancy way of saying that you’re paying interest on your interest. What happens is that unpaid interest is added to your loan balance, usually
after a period of postponed payments. Avoid a lender that capitalizes interest sooner.
Private loans: read the fine print
As a nonprofit dedicated to helping families pay for college, VSAC is committed to providing you with all the information you need to know, up front. If your child needs a private student loan, check out
the VSAC Vermont Advantage loan. Look for all the details on our Web site,
www.vsac.org/advantage.
• When considering how much you will need to repay on your loan, remember to include the amount of interest that will add up while payments are postponed (for example, during the years your child is enrolled).
• Ideally, student loan payments should consume no more than 15% of a new graduate’s starting income. Use the loan payment calculator at
www.vsac.org/calculator to estimate monthly loan payments.
• To reduce the loan amount you may need, take advantage of tuition
payment plans from your school. By spreading payments out over the
course of the academic year, you may be able to minimize what you need to borrow.
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Financial aid starts with the FAFSA. Every student should apply!
Step 1.
Complete the Free Application for Federal Student Aid (FAFSA) online at www.fafsa.gov as soon as possible after January 1 for the upcom-ing academic year. Vermont residents should also apply for a Vermont grant at www.vsac.org/grants.Step 2.
Fill out other financial forms that may be required, such as the CSS Profile (check each college’s catalog or Web site for requirements). Apply for scholarships (check with your high school, colleges, and VSAC). Deadlines may vary by program and college. Know the deadlines and apply early!Step 3.
Compare financial aid awards. The amount your child and you as a parent end up borrowing will be different at each college. The financial aid award notice that the college sends will include the amount of federal loans that your child is eligible to borrow.Step 4.
Accept the maximum in federal Stafford loans before considering parent PLUS or private education loans.Step 5.
Consider applying for a parent PLUS loan even if you have a neg-ative credit history. Doing so may qualify your child for an increased Stafford loan amount if you’re denied (see the chart on page 2). If you have a solid credit history, compare PLUS and private options.Step 6.
If you are considering a private loan, before signing on the dotted line be sure to determine how much it will cost to pay back the loan. State higher education agencies, such as VSAC, offer financial assistance and information on the best ways to choose and compare private student loans. Learn more at www.vsac.org/learn; and to find out about VSAC’s Vermont Advantage private student education loan, visit www.vsac.org/advantage.Education financing: a step-by-step process
• federal Pell grants (do not have to be paid back; awarded to students with exceptional need)
• grants (administered by VSAC for Vermonters) for part-time and full-time study (Submit the Vermont grant application online at www.vsac
.org/grants, after submitting the FAFSA.)
• aid from colleges (Colleges may require additional forms, such as the CSS Profile, available online at
http://student.collegeboard.org/css-financial-aid-profile.)
• federal Perkins loans (for students with exceptional need) • federal subsidized and unsubsidized Stafford loans
• federal parent PLUS loans (You determine how much you want to bor-row, up to the full cost of education minus the student’s financial aid.)
The FAFSA is used to determine eligibility for:
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Vermont Student Assistance Corporation
10 East Allen Street, PO Box 2000 Winooski, VT 05404
Toll-free 800-642-3177 In the Burlington area 655-9602 Online at www.vsac.org E-mail us at [email protected]
At the Vermont Student Assistance Corporation (VSAC), we have one mission: meeting the education goals of students and families. That’s what we’ve been doing for nearly 50 years.
Here’s the fine print:
VSAC is a nonprofi t instrumentality of the state of Vermont that is committed to helping Vermont students achieve their education goals by providing information and financial resources, including grants, scholarships, and the Vermont Advantage fixed-rate student loan. Visit us at www.vsac.org.
