College Education on Loan

Consider some of the primary sources of loans available for students and families

By Jennifer Liedtka

No doubt about it, the cost of college can be a big one. Four-year, two-year, public, private, trade—regardless of the type of higher education institution your students decide to attend, a price tag will be tied to the experience.

How will you pay for it? Is financial aid in your family's future? Often, when people refer to financial aid they think only of free money. While students benefit from many types of scholarships and grants, it is important to realize that an even greater amount of assistance is available in the form of education loans. It's true this type of aid is not free—at some point repayment will be required. The terms of many of the programs, however, are quite favorable. Responsible borrowing for education is a great investment.

Consider some of the primary sources of loans available for families.

Stafford Loans are the most common types of student loans from which every student may benefit—regardless of family income. Based on the need of the student, the institution will determine if the loan will be subsidized (interest-free while the student is enrolled) or unsubsidized (interest assessed while the student is enrolled). Regardless, a dependent student may borrow up to $2,625 as a freshman, $3,500 as a sophomore, and $5,500 during the junior and senior years. While the annual amounts may not seem like much compared to the cost of many institutions, the relatively low interest rates and favorable repayment terms make this a good place to start borrowing and an ideal way for traditional students to begin establishing credit.

Perkins Loans have a fixed interest rate of five percent and deferred repayment of principal and interest until nine months after graduation. These loans come with some of the best terms available and offer a good way for students to borrow.

What happens if financial aid (including the above loans) does not cover your students' total costs? If your family is not in a position to make this payment, a PLUS Loan for credit-worthy parents of dependent students is an option. With a variable interest rate capped at nine percent, you may take advantage of this federal program to borrow all or any part of your out-of-pocket expenses that remain after aid is deducted from the bill.

If you aren't in a position to borrow or you feel that it is the responsibility of your child to do so, a private alternative student loan might be an option. Many loans with a variety of terms exist in this category. Traditional students often need a credit-worthy cosigner in order to borrow a private education loan, and they may typically borrow all or any part of the funds needed to cover their bill.

Regardless of the borrowing needs of your family, it is important to talk with your institution about loan processing procedures and the particular programs and lenders most commonly used there.

Jennifer Liedtka is the director of financial aid at Lebanon Valley College in Annville, Pennsylvania.