Comparing Student Loan Options

Student Loan Comparison:

Many families and students are gearing up for the upcoming school year, which also means they are reviewing the bill for the upcoming semester. For most families, there is a “funding gap” between what you owe the school and cash you have on hand to make that payment. That gap is often filled with some sort of student loan.

However, every family’s situation is a little different and it’s important to understand the different types of student loans available so you can make an informed decision.

Here is a brief description of some of the different types of student loans:

Federal Direct Student Loan

This is the most common type of student loan and the recommended place to start if there is a funding gap. These loans are provided directly from the U.S. Department of Education. The maximum amount of Federal Direct student loans (or FDSL’s) a student can take during their education is $27,000:

  • $5,500 Freshman Year
  • $6,500 Sophomore Year
  • $7,500 Junior Year
  • $7,500 Senior Year

Not all of these loans are created equal. There are two different categories for FDSL’s: Subsidized and Unsubsidized. A brief description of both:

  • Subsidized:
    • These loans DON’T accrue interest until after a student graduates
    • They have lower student loan borrowing limits
    • They’re more readily  available for students who have a higher financial need
    • They’re only offered for undergraduate students
  • Unsubsidized:
    • These loans ACCRUE interest while a student is in school
    • They have higher borrowing limits
    • The availability isn’t tied to students’ financial need
    • They’re available for undergraduate, graduate and professional degrees


Federal Parent PLUS Loan

Parent PLUS loans are for, as the name entails, the parents of the student. These loans are taken out by the parents of the student attending college. In order for the parent’s to be eligible for a PLUS loan, they must:

  • Be the parent of a dependent undergraduate student who is enrolled at least part-time
  • Have a good credit history
  • Be eligible through requirements on all federal student loans

The borrowing limit is the cost of attendance minus any financial assistance received. These loans are also issued by the U.S. Department of Education.


Private Student Loans

These loans are offered by third party lenders and are more rigid than federal loans.

Generally speaking, these loans are offered by banks and credit unions. These are offered based on credit and not financial need, and can be co-signed. These loans have a large range of borrowing amounts and the interest rates can be fixed or variable.

Typically, these loans are only looked at after a family has already borrowed the maximum federal loan amount but they still have a funding gap.


State Loans

State loans aren’t offered in every state and you are only eligible for state loans in the state the college is located.

Typically, these loans have a fixed interest rate that is a little lower than Parent PLUS loans. Make sure to review the details of these loans before you sign on the dotted line as the interest rates vary by state.


Need help weighing your options?


If you have questions or want to weigh your options specific to your family’s needs, we are happy to help! Schedule a time to sit down with us to discuss your financial plan as it relates to paying for college education.


Ethan Brouwer is not registered with Cetera Advisor Networks, LLC.

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