The College Loan Puzzle
Finding a way to pay for college can be a conundrum with no easy answers. For most middle- and lower-income families, loans are going to be an inevitable piece of the puzzle.
Several types of college loans are available: federal, state-based and private.
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Federal college loans, which include Perkins, Stafford and PLUS loans, all carry a fixed interest rate but vary in their terms and fees. The Perkins loan is based solely on need, but the other two are available to all U.S. citizens and permanent residents who qualify. To apply, students must fill out a Free Application for Federal Student Aid, or FAFSA. Repayment terms are usually flexible, allowing up to 10 years or more to repay the loan. If you have trouble repaying the loan after you graduate and the grace period expires, you can apply for a hardship deferral or forbearance as well.
State-based loans often are limited to students from the state or those who are attending college in the state. These college loans usually have a fixed rate, and you may find that they’re less costly than even a federal PLUS loan. The Education Finance Council keeps a list of not-for-profit organizations and lenders that offer state-based loans, including the Rhode Island Student Loan Authority and the Massachusetts Educational Financing Authority, for example. These loans usually require a cosigner, and their repayment terms vary according to the lender.
If federal and state loans are not an option or don’t provide enough funding, you can apply for a private loan. These college loans come from for-profit institutions, such as banks or Sallie Mae, and often carry a variable interest rate that will rise and fall with the prime rate or another economic barometer. Because these loans are not fixed, you may someday find yourself with a substantially higher payment than you started with. Private college loans may require a cosigner, and their terms vary widely. They should be your last choice as you decide how to pay for college.