Understanding Credit-Based Loans
It is extremely important from a personal finance standpoint that you first exhaust ALL possible grant, scholarship, and need-based loans (if eligible) possibilities prior to considering a Federal Direct PLUS, Direct Grad PLUS or non-federal private student loan.
We advise you to borrow only what is truly needed to pay for qualified educational expenses. As you make your plans, you should give serious consideration to the loan amounts needed throughout your entire education. You should make sure you can comfortably afford your student loan indebtedness. Consider the income you expect to earn upon entering repayment, and take time to determine your estimated expected monthly payment.
Loan Affordability Calculator
http://mappingyourfuture.org/paying/debtwizard/
Monthly Repayment Calculator
http://mappingyourfuture.org/paying/standardcalculator.htm
Many students and/or families that are seeking additional financing to cover the costs associated with education consider federally-guaranteed loans such as Direct PLUS and Direct Grad PLUS or non-federal private student loans. Which loan program is “better” is an individual decision and will be dependent on your circumstances and preferences. Both types of loans are “school-certified,” meaning that the Office of Financial Aid will confirm the amount that is approved to be borrowed. The funds will then be disbursed directly to the school. This measure is in place to help ensure borrowers are not over-borrowing.
We highly recommend you research both loan options and choose the option that best meets your individual needs.
- Dependent undergraduate students and families have the option of applying for the Federal Direct PLUS and non-federal private student loans
- Independent undergraduate students have the option of applying for non-federal private student loans
- Graduate and professional students have the option of applying for Federal Direct Grad PLUS and non-federal private student loans
Many students, particularly undergraduate students, will likely need to find willing, creditworthy individual(s) to co-sign their non-federal private education loan applications to increase the likelihood of being approved and getting the best pricing and terms.
For students and/or families that would like to consider both options prior to making a final decision, it is advised that you start the process early and apply (cross-shop) between both Federal Direct PLUS/Grad PLUS and non-federal private student loans within a 30 day window. Applying for a non-federal private student loan does not impact eligibility for a Federal Direct PLUS or Grad PLUS loan (or vice-versa) and applying for multiple credit-based student loans (rate shopping) within a 30 day window will be treated as one inquiry when determining a credit score by private student loan lenders.
While the Federal Direct PLUS and Grad PLUS loan terms are the same for all borrowers, non-federal private student loan terms will vary based upon lender and borrower credit-worthiness.
It is for this reason we recommend that you compare ALL options very carefully before signing a Master Promissory Note (MPN) for any particular loan.
When comparing the eligibility of student loans, students and/or families should consider:
- Who is the borrower on the loan (student, parent, etc.)?
- Which type of loans may I be eligible for based upon my classification and dependency status?
- Will I need a cosigner on the loan?
PLUS or Grad PLUS Loan
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Non Federal Private Student Loan
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Whose name is the loan in? |
Parent of a Dependent Undergraduate Student or Graduate/Professional Student |
Student |
Who is responsible for repayment? |
Parent of a Dependent Undergraduate Student or Graduate/Professional Student |
Student |
Who can take out this loan? |
A dependent undergraduate student’s parent or step-parent or a Graduate/Professional Student |
Student (and creditworthy cosigner) |
When comparing the cost of student loans, students and/or families should consider:
- What’s the interest rate? The interest rate is the percentage of the loan that the bank charges you to actually borrow the funds.
PLUS or Grad PLUS Loan
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Non Federal Private Student Loan
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Interest Rate |
For loans with a first disbursement date |
Fixed: dependent upon each lender |
- Fixed or Variable Interest Rate? Having a fixed rate loan means that the interest rate on your loan never changes—it stays fixed throughout the life of the loan. A variable interest rate is one that changes throughout your loan term and is dependent upon another number—either the London Interbank Offered Rate (LIBOR) or Prime Rate. LIBOR is the average interest rate that leading banks in London charge when lending to other banks. The Prime Rate is the interest rate that commercial banks in the United States charge their most credit-worthy borrowers, and is a figure largely determined by the Federal Funds Rate (the overnight rate at which banks lend to one another). For a variable rate loan, you would be charged a certain percent above LIBOR or Prime, so your rate would change on a monthly basis to reflect the current LIBOR or Prime. Usually, a fixed rate is a little higher than a variable rate, as the fixed rate doesn’t fluctuate with the economy, while the variable rate may be lower as it is reliant upon an economic indicator.
- Are there any up-front loan origination fees?
PLUS or Grad PLUS Loan
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Non Federal Private Student Loan
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Origination Fees |
For loans made from October 1, 2023, and September 30, 2024, |
As low as 0% – depends on lender |
- Are there any up-front loan discounts or back-end repayment benefits?
- What will the monthly payment be upon graduation?
- What will be the repayment terms on the loan?
When considering repayment, students and/or families should consider:
- Is there a grace period after graduation?
- How long is the standard repayment term, and what options exist?
- Who will service my loans once they enter repayment?
- What deferment or forbearance options may be offered?
- Will the loan be eligible for loan forgiveness and under what circumstances?
Federal Loan Forgiveness Possibilities: http://www.finaid.org/loans/forgiveness.phtml
Federal Direct PLUS and Grad PLUS Loan
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Non-Federal Private Student Loan
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Borrower |
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Eligibility |
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Interest Rates |
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Fees |
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Credit Requirements |
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Servicer |
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Repayment Terms |
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Grace Period |
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Loan Consolidation |
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Loan Forgiveness Options |
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Repayment Options |
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Annual Loan Limit |
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Aggregate Loan Limit |
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How to apply for Credit Based Loans: