The Colorado Insiders Guide to Student Loans

Federal vs. Private
Loans

Student loans come in two
flavors, those that are provided or sponsored by the federal government and
those that are not. Federal loans tend to have better rates and terms than
private education loans, which is why you should generally explore your federal
loan options first.

Just because a loan is
sponsored by the federal government, however, doesn’t mean Uncle Sam will be
your lender. Private lenders like Citibank offer federal loans as well as
private loans.

Federal Loans themselves come
in two-types:

Subsidized loans, which means the government pays the interest
while you are in school.

Unsubsidized loans, which means the interest starts accruing as soon
as you get the loan (although payments may not be due until you
graduate.)

Generally, you will want to
take the maximum advantage of any subsidized federal loan programs for which you
qualify before you explore other
options.

Subsidized loans
include:

Perkins loans. These come with a fixed 5% interest rate and you
can borrow up to a maximum of $20,000. They can be canceled if you work in
certain fields, such as nursing, law enforcement, Peace Corps volunteering or
teaching in a low income area.

Subsidized Stafford Loans.

Stafford Loans have a variable
interest rate that is capped at 8.25%. You will also pay an upfront fee of 4%,
which is typically deducted from your payout. You can borrow a maximum of
$23,000 for both subsidized and unsubsidized     Stafford loans.

If you are a student paying for
college yourself, these loans may still be a good deal compared to what is
available from private loan programs. If you are a parent or have access to
alternative funding — such as a home-equity loan that can lock in at a lower
rate — you might choose that instead.

There is one other major type
of federal student loan program — PLUS Loans for parents.
(Parent Loans for Undergraduate
Students.)

This program allows parents to
borrow the difference between the student’s financial aid package and the full
cost of his or her education, including books, supplies, room & board, as
well as other living expenses.

PLUS Loans have variable
interest rates that are capped at 9%. 
Currently the PLUS rate is 4.17%. Unlike the student loans we’ve
discussed so far, you must have decent credit to be approved for  these loans, and you will need to start
making payments shortly after the money is
disbursed.

How do you get these federal loans?

Perkins Loans are made by the
schools themselves. If the school participates in the Federal Direct Loan
Program, then Stafford and PLUS loan
applications also can be made thorough the school. Otherwise you will need to
apply to a bank, savings and loan or credit union that provides money under
federal student loan programs. Your college’s financial aid office can recommend
lenders, but you are always free to choose your
own.

Most private lenders offer the
same rate and terms on federal loans. There are lenders that sell their loans to
Sallie Mae, which buys many student loans. 
Sallie Mae tends to offer good repayment incentives, such as a break on
interest rates after you have made four years of on-time
payments.

What if you need more
money?

Once you have exhausted your
federal student loan options, you can look to private loans sponsored by
not-for-profit          
organizations or provided directly by banks. Typically, the rates will be
slightly higher, the upfront fees greater, interest will begin accruing as soon
as you get the money and your repayment options may not be as numerous. Also
your ability to get the loans usually depends on your credit
history.

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