Office of Financial Aid

University of Mississippi

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
Non Federal Private Student Loan

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
Non Federal Private Student Loan

Interest Rate

For loans with a first disbursement date
between July 1, 2016 and June 30, 2017,
the interest rate is fixed at 6.31%.
For loans with a first disbursement date
between July 1, 2017 and June 30, 2018,
the interest rate is fixed at 7% .

Fixed: dependent upon each lender
Variable: 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
Non Federal Private Student Loan

Origination Fees

For loans made from October 1, 2016 and September 30, 2017,
the origination fee is 4.276%.
For loans made from October 1, 2017 to September 30, 2018,
the origination fee is 4.264%.

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
Non-Federal Private Student Loan

Borrower

  • Direct PLUS: Parent of Dependent Undergraduate Student
  • Direct Grad PLUS: Graduate or Professional Student

 

  • Student (any level & dependency status) and cosigner (if required) (Cosigner can be parent, relative or other willing individual)

 

Eligibility
  • At least half-time and degree seeking
  • Full-time, half-time, less than half-time degree, certificate and licensure seeking, all depending on individual lender
Interest Rates
  • 7.21% fixed interest rate

 

  • Fixed and/or variable interest rate options available depending on lender

 

Fees
  • 4.292 % origination fees deducted up-front from approved loan amount
  • Fees may or may not apply depending upon lender
Credit Requirements
  • Credit check required
  • Approval determined by federal criteria and is not based on credit score
  • Additional unsubsidized Direct Loans may be awarded to dependent undergraduate student based upon Direct PLUS credit denial

 

  • Credit check required
  • Approval determined by lender criteria based on credit score, credit history and income (if credit-worthy applicant or cosigner required)
  • Dependent undergraduate students are likely to need a credit-worthy cosigner

 

Servicer
  • United States Department of Education contracted servicers
  • Determined by lender
Repayment Terms
  • 10 year repayment
  • May request deferment of payment during in-school and 6 month grace period

 

  • Typically 15-25 years depending upon lender
  • No mandatory payments while in-school (although interest-only payments highly recommended)

 

Grace Period
  • Available upon request Direct PLUS and Grad PLUS
  • 6 to 9 months grace period after enrollment ends depending upon lender
Loan Consolidation
  • May be consolidated with other federal educational loans (i.e., Perkins, Stafford, Direct Subsidized, Direct Unsubsidized, etc.) through the Federal Direct Loan Consolidation Program for borrower

 

  • Private Loan Consolidation may be available through various private lenders

 

Loan Forgiveness Options
  • Loan forgiven in the event of permanent disability or death of student
  • Public Loan Service Forgiveness option exists (see more info here)
  • Loan may be forgiven in the event of permanent disability or death of student, dependent upon lender
  • Ineligible for Public Service Loan Forgiveness option
Repayment Options
  • Various repayment options available, including Income-Based Repayment, Income-Contingent Repayment, Graduate, Standard and Extended
  • Deferment and forbearance options available
  • Standard
  • Forbearance options may be available, dependent upon lender
Annual Loan Limit
  • Students may borrow up to the cost of education less other aid received

 

  • Students may borrow up to the cost of education less other aid receivedr

 

Aggregate Loan Limit
  • None

 

  • Yes, amount depends upon lender