How to compare private loans?

You should begin researching the various private loans available. Make sure when you consider the loan terms, you compare apples-to-apples so that you can make the most informed decision possible.

For each private loan that you research, find out the following information:

• Interest rates: What is the interest rate on the loan? How often does it vary and how is it calculated? How does obtaining a creditworthy endorser or cosigner affect the interest rate? When does interest begin accruing? If you cannot afford to make payments while attending school, will the lender postpone payments and allow the interest to be capitalized (added to the principal)? if so, how often will capitalization occur?
• Loan fees: What are the loan fees? How are they collected — are they charged on top of the requested loan amount or subtracted from the total loan amount to be disbursed? Will you be charged a fee when you enter repayment? Are there fees associated with prepaying the loan?
• Repayment terms and period: When will you begin repayment on the loan? Can repayment be postponed until after you graduate or leave school? What are your various repayment options and what are their advantages and disadvantages? How long will you have to repay the loan? If you use the maximum or minimum repayment period, what amount of interest will you pay over the life of the loan? What is the charge for a late payment?
• Repayment incentives: Are there any rewards for a certain number of on-time payments in terms of principal reductions, interest rate reductions, or forgiveness of remaining balances below a certain amount?

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Guide to the Federal Pell Grant Program

Federal Pell Grants are the most widely available type of grant program for undergraduate students. Unlike the Federal loan programs (Stafford, Perkins, PLUS, etc.), Pell Grant awards never need to be repaid.

Federal Pell Grants are made available to students based on a number of factors, all of which are connected to a student’s "Expected Family Contribution" (EFC). In other words, Pell Grants are given to students who demonstrate a significant financial need. 

Federal Pell Grant Award Limits:

The maximum Pell Grant award can change annually based on the amount of Federal funds made available for the program. The percentage of this maximum amount that a student receives is directly affected by the student’s Expected Family Contribution (EFC), Cost of Attendance (COA), and status (full-time, half-time, etc.).

For the 2009-2010 school year, the maximum Pell Grant amount is $5,350.

Unlike many of the Federal loan programs that have lifetime caps on borrowing, the Pell Grant does not currently have a lifetime maximum on awards. As long as a student is pursuing their first bachelors degree and is otherwise eligible, they can receive Pell Grant funds.

Pell Grants and the Expected Family Contribution (EFC):

Federal Pell Grants are awarded to individuals based on their Expected Family Contribution (EFC), which is calculated using the assets and income of both the student and their parents. As a student’s Expected Family Contribution rises, their potential Pell Grant amount decreases. Above a certain EFC level, no Pell Grant will be awarded.

For the 2009-2010 school year, the maximum EFC level that can still receive a partial Pell Grant is $4,617.

Pell Grants and the Cost of Attendance (COA):

Pell Grant award amounts are affected by a student’s Cost of Attendance for their college or university. The greater the Cost of Attendance, the closer the student will get to receiving the maximum Pell Grant amount.

For the 2009-2010 school year, the minimum Cost of Attendance required to receive the full Pell Grant amount is $4,860.

Pell Grants and Student Status:

Pell Grant award amounts are also affected by a student’s attendance status. Full-time students are eligible to receive the largest grant amounts, with three-quarter, half-time, and less than half-time students receiving less. It’s worth noting that the Pell Grant is one of the few programs that makes money available to students attending less than half-time.

For the 2009-2010 school year, the maximum Pell Grant award per category is:

• Full-time: $5,350
• 3/4-Time: $4,013
• 1/2-Time: $2,675
• Less Than ½-Time: $1,338

Pell Grants for Graduate Students:

Pell Grants are primarily available to undergraduate students. However, certain graduate teacher credentialing programs may also be eligible.

Applying for a Federal Pell Grant:

To be considered for a Pell Grant, you must complete a FAFSA form. Completing this form will help determine your eligibility for other loan and aid programs as well. Once completed, the Free Application for Federal Student Aid (FAFSA) form is forwarded to your school, which will then inform you of your Pell Grant eligibility.

 

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Student Loan Options for College Students

Student loans can help cover to the cost of your education when your aid package falls short. Some of the most popular student loans include federal loans, private loans, peer-to-peer loans and social networking loans.

Federal Loans

Federal loans are the most common education loans. They're available from federal loan programs and frequently offer more favorable terms than private loans or peer-to-peer loans. The Stafford loan is the most common federal loan. It's available to students who demonstrate financial need. Other popular federal loans include the Perkins loan, offered to students with exceptional financial need, and the PLUS loan, available to graduate students and to parents of dependent students. Students who cannot demonstrate financial need can also apply for unsubsidized loans through the federal government's Direct Loan Program.

Private Loans

Private student loans are similar to federal loans, but tend to have less favorable terms. For example, interest rates are often higher and grace periods (periods when no payments are due) are usually non-existent. Getting a private student loan can also be more difficult because the loans are given out by banks rather than the government. Banks will check your credit score and may not approve your loan application if you are having financial difficulties. Despite the drawbacks, private student loans can be a good way to fund your education. The key is to compare lenders and find the loan with the most favorable terms.

Peer-to-Peer Loans

Peer-to-peer loans are becoming increasingly popular. These loans, which are available through sites like Prosper and Lending Club, are personal loans from unnamed investors. You receive the money you need and investors earn returns on their money through the interest you pay.

Social Networking Loans

Social networking loans are similar to peer-to-peer loans but rely on a social networking platform. You begin by asking your friends, family and other members of your social network for small loans for college. Then, you sign up for a service like Green Note which will create formal, legally-binding loan agreements. You receive the money you need and your social network makes money on its investment through the interest you pay on the loan.

Family Loans

A final loan option for students involves borrowing from family. Naturally, there are many different pros and cons associated with this option. If you do borrow from a family member, you should consider drawing up an official contract. This will eliminate confusion about the loan terms for both of you.

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