The Truth About Student Loans – Capella University Blog

September 10, 2014

Higher education is an invaluable investment in your future.

Key word: investment. Before you can reap the benefits of your degree, you must find means of funding to complete it. Student loans are a practical and accessible way to support your educational expenses. Before you apply for a loan, make sure you know the ins-and-outs of student aid available to you.

Take Interest: Student Loans Are Not Free Money

Unlike grants, scholarships, and tuition reimbursement, student loans are loans – legal, financial agreements you make with loan providers. You are borrowing money that you must pay back. With interest.

With that in mind, you may want to apply for grants and scholarships first. Start by filling out your FAFSA, or Free Application for Student Aid. Your FAFSA will help you identify how much financial aid will come from grants or scholarships and how much you might need to borrow in loans. The Financial Aid Office can help you explore your options. Bonus? Your employer may offer tuition reimbursement options!

Types of Student Loans: Federal and Private

There are two main types of student loans:

Federal student loans: Financial aid funded by the Federal Government. There are two federal student loan programs: the William D. Ford Federal Direct Loan Program and the Federal Perkins Loan Program. The direct loan program offers three types of loans: Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans.
Private student loans: Non-federal loans are funded by private lenders such as banks, credit unions, state agencies, schools, or other organizations. There are varying types of private loan programs, each defined by the lender.

Conditions, terms, and dollar amounts for student loans are unique to the specific loan program. The following is a breakdown of four main Federal loan programs and an overview of private loan programs.

LOAN TYPE	DETAILS
Direct Subsidized Loans	Who It’s For: Eligible undergraduate students who are enrolled at least half time Eligibility: Students must demonstrate financial need to apply Lender: U.S. Department of Education Interest: 4.66%; interest does not accrue while in school nor during deferment periods Payment Terms:* No payments due until leaving college, or dropping below half time Annual Award Amount: $3,500-$5,500, depending on grade level
Direct Unsubsidized Loans	Who It’s For: Eligible undergraduate and graduate students who are enrolled at least half time Eligibility: Students do not need to demonstrate financial need to apply Lender: U.S. Department of Education Interest: 4.66%* (undergraduate) and 6.21% (graduate or professional); students are responsible for all accrued interest Payment Terms: No payments due until leaving college, or dropping below half time Annual Award Amount: $5,500-$20,500, depending on grade level and dependency status
Direct PLUS Loans	Who It’s For: Parents of eligible undergraduate and graduate/professional students who are enrolled at least half time Eligibility: Students do not need to demonstrate financial need to apply; borrowers will be reviewed for adverse credit history Lender: U.S. Department of Education Interest: 7.21%; borrower is responsible for interest accrued at all times Payment Terms: No payments due until leaving college, or dropping below half time Annual Award Amount: Up to the cost of attendance, subtracting additional financial aid packaged
Federal Perkins Loans	Who It’s For: Eligible undergraduate and graduate students who demonstrate exceptional financial need Eligibility: Variable upon financial need and availability of funds at the university Lender: The attending university Interest: 5% fixed rate; interest does not accrue while in school nor during deferment periods Payment Terms: No payments due until leaving college, or dropping below half time Annual Award Amount: Up to $5,500 (undergraduate) or up to $8,000 (graduate and professional students)
Private Student Loans	Who It’s For: Eligible undergraduate, graduate, and professional students Eligibility: Variable upon specific loan eligibility requirements; most private loans require a credit check Lender: A private lender such as a bank, credit union, state agency, school, or other organization Interest: Loans differ; interest typically accrues while in school Payment Terms: Payments are typically due while in school Annual Award Amount: Amounts vary by lender and are defined by the specific loan program

* Interest rates are subject to change. The rates quoted in this chart are for loans first disbursed on or after July 1, 2014, and before July 1, 2015.

How to Apply for a Student Loan

The application process for Federal Student Loan programs is an easy, 3-step process:

Fill out your Free Application for Student Aid (FAFSA)
Complete Online Loan Entrance Counseling at StudentLoans.Gov
Sign a Master Promissory Note (MPN) at StudentLoans.Gov – this is an agreement to Federal Student Loan terms.

The application process for private student loans will vary by lender. Check with your preferred private lender for details.

Cautions and Concerns About Student Loans

As you consider your student loan options, keep these points in mind:

Seek federal loans over private loans. There are many reasons federal loans are better than private loans. They often have lower interest rates, do not require a credit check or cosigner, do not require repayment until after leaving college or dropping below half time, and they offer flexible repayment plans with options to defer repayment. Private loans typically have higher interest rates, immediate and stricter repayment terms, and limited deferment options.
Be a responsible borrower. First, remember that you may borrow less than what you are offered. Only borrow what you need. Then, follow all terms of your loan. Additionally, make payments on time and apply for deferments using the proper channels, if needed. Finally, if you move your place of residence, update the lender with your address.
Be wary of fraud and identify theft. Never pay for help to fill out your FAFSA nor to find money to help you pay for college. Financial Aid Counselors are available to help you do this for free. Be careful when providing your Social Security number and other sensitive personal and financial information. Always report any fraud or identity theft immediately, so that damage does not rack up over time.

All Capella University enrollment counselors are trained in education financing. Learn more about student loans and other financial aid options at Capella.

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