Student Loans

Federally subsidized student loans are awarded based on the student's financial need. The amount of financial need and amount that can be borrowed is determined by the information submitted by the student through the Free Application for Federal Student Aid (FAFSA).

Depending on the school's programs, one might arrange such a subsidized loan through a private lending agency or directly from the federal government. The type of program determines the full details of repayment, so always pay close attention to the terms before signing a promissory note. Once that note is signed, you've made an agreement to begin repayment at a certain time and its too late to bargain for an agreement better suited for individual circumstances.

The obvious advantage of subsidized loans is that they carry low interest rates, and the debt won't grow until six months after college graduation. The disadvantage is that the amount one borrows is limited to the government's definition of expected income and family contributions.

The interest rates a student pays on a federally subsidized loan is set by Congress as law. According to the current statutes, the following interest rates are applied to all subsidized student loans based on the year the loan is created:

FFEL and Direct Loan: 6.8% until 6/30/2009 (except for subsidized undergraduate loans, which are 6.0% after 7/1/2008)

Stafford Loans: 6% for loans issued from 7/1/2008 to 6/30/2009

If subsidized student loans aren't enough to pay for college tuition and expenses, many students also have an option of taking out unsubsidized, or private student loans. These loans typically carry market-based interest rates and may pass 10% per year.

Typically, unsubsidized loans begin accruing interest immediately upon issue. So while most deals will not require student borrowers to make payments until after their graduation, the total amount owed at that time will be significantly higher than the subsidized version of the loan.

Student loan debt consolidation can help get you out of a tricky situation - or it might put you into one. As loans are issued on an annual basis, terms and conditions and interest rates may vary. Consolidation allows students to re-finance the loans and come to a new set of terms with a private lender.

Not all forms of college financial aid have to be paid back. College scholarships, grants, fellowships, and contest awards are basically just free money for college students. Competition for such funds is typically pretty high, so success requires a lot of research and multiple applications.

Student loans are a big topic in Congress and the news lately - the industry has enjoyed many years of profitable subsidy and now the credit crunch and public reaction against them is undermining their ability to continue in business.

As the 2008-2009 school year starts up, a lot of financial aid counselors, students, and parents are wondering where the money for student loans is supposed to come from. Banking and finance problems have dried up a lot of sources of cheap and risky credit - and students are among those most affected.

Federal student loan applications are way up, and its important that you apply early if you hope to have your request met!