Student Loan & Student Loan Consolidation

Some personal finance techniques for maximizing your eligibility

There are many forms of financial aid. Scholarships may occur awarded for academic merit, achievement, leadership, exquisite talent, and/or athletic prowess. Grants may be based on financial need or your attractiveness to an entrance committee. Loans may be based on children ability to pay or just on enrollment. So how do you maximize the eligibility for financial aid?

Let’s assume that you are most interested in “gift” aid - that is, money that does not occupy to be repaid. Federal gift (and subsidized loan) aid is usually need based. It uses a formula that is quite straightforward and looks at family income and assets, family size, and the number of family members in college to finish eligibility. There are a few places you jar influence your eligibility:

Assets held in a parents name count much less than assets held in a student’s name.
Home and retirement assets are not counted but other non-retirement assets are included in the formula.
Multiple siblings attending college at the same time increase your eligibility.
Are your parents supporting other dependents? Grandparents? Family size is important in determining eligibility. College gift aid may use completely different criteria than the Feds. Don’t be shy in effective all in your application to the admissions committee. They are looking for students who will make a difference while in school, and will make them proud after graduation. This includes the genius, the creative artist, the talented athlete, the community service-oriented leader, the geographically and the ethnically diverse.

Of course, there are some things you just can’t change, i.e. your ethnicity or your IQ. However, you can show your community spirit through volunteering, working at your local nursing home, feeding the poor on Thanksgiving or starting a tutoring program for young children in need.

Do you have artistic or performance talent? maintain a portfolio of your work from extraordinary school. It will help others to assess your special ability. exist prepared to audition for some awards.

There is no magic way to qualify - the magic is in learning what is available and applying for whatever you think you may be eligible for. This is hard work - it requires organization, perseverance and succeed though. However, the returns can be significant.

Here is a list of “dos and don’ts” regarding loan consolidation for students

Do:

1. conjoin while in institute or near the terminus of the six month loveliness period.

2. peep for the breathest deal for consolidation. The Office of economic benefit recommends a company called Direct Loans, but the student is free to check with state agencies and other lenders, he said.

Don’t:

1. Don’t combine at the beginning of the six month grace period.

2. Don’t consolidate their loan with their spouse. “If your spouse were to be lamed to the point of being totally disabled or were to pass away, you may be responsible for his or her loans,” Olson said.

3. Don’t consolidate assuming they qualify for military benefits. now and then the military decision take over loans for the borrower but it will not if they have been consolidated, he said.

From The Wall Street Journal Online
In the latest attempt to stand out in the burgeoning market for student loans — and as shopping season for college financing heats up for families — banks are tweaking their student-loan lineups.

They are put under the hammering a range of “improved particulars” and tantalizing rebates and discounts for borrowers with good payment records.

But while the latest crop of deals may sound better than past offerings, the alteration in potential store is often scant, say student-financing experts. And most banks themselves say that even with improved terms, they still expect only a fraction of borrowers to fit for the savings.

At issue are so-called borrower benefits, which gain become a staple of student debt during the past decade. Typically, these benefits promise a reduction in the interest rate on the loan after a certain number of payments are made on interval — typically 48 monthly payments on a 10-year student loan. These benefits can potentially save borrowers hundreds or even thousands of dollars closed the life of a loan.

But the deal is usually off if borrowers are late with even one payment. And even if the borrower makes it to the milestone to qualify, the benefit could still be rescinded if payments are late at any time down the road.

This year, many lenders have reduced the number of on-time payments required sooner benefits kick in. And some have replaced rate reductions with attractive-sounding rebates on the chief amount of the loan — often in a tiered plan that refunds payments in stages as a student’s on-time record continues.

Offering new discounts and perks can help banks get on the “preferred lender” lists that many colleges provide to students, and can make a big difference in the volume of loans a bank can attract.

This month, Bank of America Corp. began offering a new three-tiered rebate whereby student borrowers can get as much as a 3% reduction on the principal amount of their Stafford federal loans, the most popular type of student loan. The rebates replace the previous rate-reduction benefit, and kick in sooner — after 12 on-time payments, instead of 48. Wachovia Education Finance, a unit of Wachovia Corp., offers a similar “Triple Payback” incentive, begun in May, which allows for as much as a 3.5% rebate on the embryonic amount for the Stafford loan or Parent Loans for Undergraduate Students, or extra. Students can get their first-stage rebate at the start of repayment, whereas previously they had to wait until 24 payments were made on time.

While it is too early to say how many students will qualify for the new swath of discounts, qualification rates have traditionally been meager. And some debt experts point out that even the improved terms are unlikely to solve the main challenge that graduates face when starting to repay their debt — the fact that their lives, and their mailing addresses, are in a state of change.

“The individual most common payment not made on time is the first one,” says Nancy Coolidge, coordinator for student financial support for the 10-campus University of California system. “The kid isn’t getting the mail because it goes to his mom or to his old apartment.”

Nonprofit student-loan provider Access Group, which last year lowered its threshold for earning an interest-rate reduction to 36 from 48 on-time payments for consolidation loans, estimates that 10% to 15% of its borrowers will qualify for that discount. American Education Services in Harrisburg, Pa., says about 13% of students qualify for its one- to two-percentage-point interest-rate discounts. Wachovia says that despite changes to its Triple Payback program, it still expects only 5% of Stafford borrowers and about 10% of PLUS borrowers to qualify. The changes were made for “marketability” reasons “and not necessarily so that more people would qualify,” says spokeswoman Jennifer Darwin.

The student-loan market is progressively big business for banks. The Federal Family Education Loan Program went up to more than $68 billion in 2002-03 — more than twice the amount borrowed in 1999-2000. The average loan size went up to about $7,100 from $4,800 in that time.

At last one lender, Bank of America, says it does expect its new improved terms to decision in higher qualifying rates. The bank had conducted a three-year study on its Stafford loan benefit and found that only 12% of students made the requisite 48 monthly payments on time to qualify for the discount.

With its new benefit that kicks in after 12 on-time payments, Bank of America expects that the share of borrowers who qualify for at least a part of its new benefit will rise to somewhere between 40% and 50%.

But even for students who do qualify, the difference in savings with many of these newer deals compared with previous offerings is often negligible. A student who borrows $20,000 over 10 years could save as much as $27 with Sallie Mae’s “Cash Back” program, which promises students cash back or a loan credit on their Stafford loans. That is compared with Sallie Mae’s former “Great Rewards” program, which amounted to a reduction on the interest rate.

Cash Back was introduced in 2002, says Sallie Mae spokesman Tom Joyce, in part to offer students rewards sooner: It requires 33 on-time payments, compared with the 48 students had to make before. With the new offer, students keep the rebate once they attain it, whereas they previously needed to continue making payments on time to hold on to their discount.

From The Wall Street Journal Online

The math may be changing on student loans.

Lawmakers are considering a revamp to the federal student-loan program that
would add a new option into the mix: adjustable-standard charge loans. On the flip side,
rooted-rate loans may betimes become more expensive.

The changes, wending their way through Congress, could be good disclosure for future
students. For years, there was only one choice for graduates looking to consolidate
all of their student loans into a single loan: a fixed rate that was locked
in for good and couldn’t be refinanced. Ask anyone who consolidated in the mid-1990s
– when student-loan rates were north of 8% — how they feel about that these
days and you’ll get an earful.

With the proposed changes, students would still only possess one crack at consolidation,
but they would have the option of choosing an adjustable-rate loan. Loan rates
would adjust annually as interest rates rise and fall.

These days, though, rates are rising. Which brings me to the bad news: If the
legislation is passed as is, locking in today’s still relatively cheap rates
with a fixed-rate loan will cost you more.

How much more? Currently, the rate you pay on a consolidated loan represents
the weighted average of your loans rounded up to the nearest one-eighth of a
percent (capped at 8.25%). That formula would still stand with the adjustable
choice. But under the proposed rules, if you choose a fixed-rate loan instead,
the government would tack on a percentage point. Plus, you’ll get hit with a
0.5% origination fee. Currently, there is no fee on consolidation loans.

The upshot: If you’re thinking about consolidating to a fixed-rate loan, now’s
the time — before interest rates rise further or these changes become law.

“Everybody who was inattentive enough not to have consolidated by July 1 should
probably do so now, because when these changes roll in it’s going to cost them
a lot more,” says Barmak Nassirian, a spokesman for the American Association
of College Registrars and Admissions Officers in Washington, D.C.

Lawmakers got a impression closer to updating the federal student-loan program last
week when the House Committee on Education and the Workforce approved a bill
that would update the Higher Education Act. Lawmakers aren’t expected to vote
on the legislation, or a similar bill in the Senate, until the fall.

“This issue is one of my top priorities, and I’m optimistic the House and Senate
will work together to enact meaningful reforms … by the end of the year,”
says Rep. John A. Boehner (R., Ohio), chairman of the committee.

Preserving Rates

The changes have been proposed as a way to shift spending on financial aid.
Because student loans are subsidized, the government must make up the difference
between the student-loan rate and the rate lenders charge when interest rates
rise. By introducing an adjustable-rate loan option, lawmakers hope to pass
some of that cost onto the borrower.

Federal student loan rates re-set annually on July 1 and are tied to the yield
on the 91-day Treasury bill, which has been rising in line with the Federal
Reserve’s federal-funds target rate, according to John Canavan, bond-market
analyst at Stone & McCarthy Research Associates in Princeton, N.J.

The fed-funds rate currently stands at 3.25%, up from 1% a year ago. “We’re
looking for the rate to end the year at 4.25%,” Mr. Canavan says.

If you took out loans over the last few years when rates were at record low
levels and you haven’t consolidated yet, consider preserving those rates for
yourself now, college administrators say.

The best consolidation rate that borrowers of Stafford loans would qualify
for stands at 4.750%, up from 2.875% last year, for students still in the “grace
period” that borrowers are allowed before they have to open paying back their
loans. For loans already in repayment, the rate is 5.375%. The Parent Loans
for Undergraduate Students (PLUS) stands at 6.125%, up from 4.25%, according
to SLM Corp., better known as Sallie Mae.

Even undergraduates should consider whether consolidating their loans now makes
sense, rather than waiting until after graduation. As this
article explains, more schools have been urging students to consolidate
loans while they’re still in school to benefit from the current low interest-rate
environment. Still, most students who consolidate loans while still in school
lose the grace period. Discuss options with your lender to be sure you have
the resources to make your monthly payments while still in school, or if the
lender offers deferred-payment ideas or forbearance until you’re financially
able to begin making payments.

Know What You’re Getting Into

Under the current rules, if all of your loans are with one lender, you must
consolidate your loans with that lender. If, however, you have loans with several
lenders, or if you have loans directly from the Desectionment of Education, you’re
free to comparison-shop for consolidation loans.

Most schools provide a “preferred lender list,” says Mark Kantrowitz, founder
of financial-aid information Web site FinAid.org in Cranberry Township, Pa.,
and many banks will offer special incentives for borrowers who sign up for automatic
bill-payment, use a lender’s Web site features or make on-time payments. As this
article explains, banks and lenders recently sweetened some of these “borrower
benefits” amid growing competition in the consolidation business.

For example, Sallie Mae recently changed its “Cash Back” incentive so that
borrowers could qualify for cash-back rebates on consolidated loans more quickly
than before. Now borrowers receive the rebate after signing up for the company’s
online account management tool and making 33 on-time payments — before the
lender required 48 on-time payments before issuing a rebate. With Cash Back,
on a $40,000 consolidation loan charging the highest rate of interest allowable
(8.25%), a borrower could qualify for up to $1,320 cash rebate.

But check the terms and conditions of these incentives carefully. Mr. Kantrowitz
of FinAid.org notes that many students eventually trip up with on-time payments,
disqualifying borrowers from the benefits.

Tom Joyce, spokesman for Sallie Mae, says few students do eventually qualify
for incentives because they don’t understand the basic terms of the loan, including
the rate and the monthly payment. “Borrowers need to think about their own behavior,
what they’re likely to qualify for, and whether or not they think they’re able
to make on-time payments,” he says. The most frequently missed payment is the
first one, because students tend to move before the repayment plan starts and
they don’t receive the bill, says Mr. Joyce says.

Finally, consolidating loans may not be the right choice for some borrowers.
The government will forgive all or part of federal education loans if the borrower
becomes a teacher in certain fields or low-income schools, or performs certain
types of public service work, such as military service or volunteer work. If
you consolidate, you may lose that chance at forgiveness –check the fine print.
For a state-by-state listing of teaching positions that qualify for loan forgiveness,
click here, and check out FinAid.org for details on other loan-forgiveness programs.

Tip! Inform your lender or service provider promptly about any of the possible adjustments that may affect the repayment of your student loan.

Over the past 40 years, just as with everything else, the cost of education has risen dramatically. norm tuition increases of more than 6% per year are middling today. Just as one example, in 1973 the cost of registration at UCLA (University of California, Los Angeles) was $208 per quarter. It is now at an end $2,300 per quarter.

That ten times increase is not too unusual - many things cost ten times what they did a few decades ago. Income, on the other hand, has risen about three times in the same period, from about $15,000-$30,000 per year to around $39,000-$42,000. The numlive befallrs vary by gender, age and more however as a rough guide, the low-lyinger area ~3:1 ratio is about right.

Now for the good news. There are more types of financial aid available today to students and parents than there ever has been. Financial aid, as the name suggests, is money that students and their parents get from scholarships, Federal and private lenders and a few other sources, to aid students in paying for education.

Once upon a time, students could depend almost entirely on Pell Grants and Stafford Loans to finance education costs, if not complete living expenses. Pell Grants are still given, but they’re need-based and express a small percentage of the education cost today. Stafford Loans are also need-based, and can range from 25%-40% of the average cost of financing school. Perkins Loans are similar, but reserved for the lowest income families.

Fortunately, PLUS Loans are available, which was not an option 35 years ago. These are loans to parents, not students, to help pay for the student’s education. The interest rates are average, and there are certain restrictions and fees, but they often form part of the total package.

A word to the wise about fees in general. Many loans are nominally for a specified amount, disclose $4,000 per year disbursed in two payments (one per semester). But it’s not uncommon for up to 4% in fees to be deducted from that amount before any funds are distributed. That 4% on $4,000 equals $160 you never see, yet have to repay. Be sure to look for low or no-fee loans.

Though Federal loan programs, like the subsidized Stafford and others, relocate no approval check and low fees and interest is paid by the government, they are not the only source of financial aid today.

The average financial aid package today volition declaration be a complex mixture of grants, scholarships (if possible), Federal and (probably) private loans. Rates range from 5% (Perkins) to the more common 6.8% or higher. With the recent big increase in defaults on sub-prime lending (mostly for mortgages), lenders are going to be more strict than before about credit history and income.

The best way to get started is to look at tables of the most common loan programs, what interest rates and fees they carry along with any eligibility requirements. One brilliant site that summarizes much of that information can be found at http://www.finaid.org/.

Tip! Ask if there are in school student loan consolidation programs. These programs will help you lock your low rate while in school.

Obtaining student aid can be more complicated than playing the stock market. There are literally hundreds of possible scholarships, loan programs and spare forms of assistance. nevertheless for the overwhelming majority a Federal student loan program is the most likely source of funds to help give for school.

Most of that money loaned is associated with one of only half a dozen programs. Stafford (for students) and PLUS (for parents) with a couple of variations cover most circumstances. But beyond the program names/types themselves, there are two common categories that those seeking funding should be aware of. Which you choose can have a substantial financial impact down the road.

The two categories are: subsidized and unsubsidized college student loans. Students generally make no payments on either type until six months after leaving school whether they graduated or not. But because of the fact that concern amounts are calculated on the exceptional principle (the loan amount), it can add up to a substantial sum over a period of years.

Subsidized loans are a type in which the government pays on behalf of the student any interest gatherd on the loan during the years attended. Neither the student nor any co-signer, such as parents, accumulate interest on the principle while the student is in school. The clock only starts ticking six months after leaving.

Unsubsidized loans are the opposite. Though payments may or may not be due during school years, the interest is calculated from the day the loan is funded. Even at a modest amount, say $1,000, at 6% per year a student can incur an more debt of $60 the first year. That doesn’t sound like much, but that $60, if left unpaid is added to the principle. The following year the interest is %6 of $1,060 or $63.60.

The example is greatly oversimplified, since interest is calculated monthly not annually and so the amount actually rises much faster, in fact exponentially. The interest amounts are typically much larger, too, since loan amounts can easily be 20 times or more than the example. A simple loan calculator will allow the destined borrower to run through some sample scenarios.

Many loans are a mixture of subsidized and unsubsidized and funds may come partly from a Stafford loan, partly from a PLUS loan, or a character of other possible types and sources. Some students may not qualify for certain Federal student loans, because of parents’ earnings or other reasons. In that case, private loans and other funding sources have to be relied on.

The only way to know for sure is to fill out the standard FAFSA (Free Application for Federal Student Aid) application, available at: http://www.fafsa.ed.gov/

Using that, in conjunction with the required accompanying documentation - showing parents and student income, credit histories, current debt loads and other information - loan officers make a decision about whether or not to grant the loan.

Most students will qualify for at least some aid.

Tip! As part of seeking student loans, you need to produce a thorough conj at the time thatsessment of what expenses you will be incur over the course of the coming semester.

Stafford loans are part of the FFELP (Federal Family culture Loan Program) established by Congress in 1965 to supply financial aid to students. Origineveryy intended to cover those ‘in need’ where the quotes indicate that the statement of meaning de was somewhat loose even then, it rapidly expanded. Tocycle, Stafford loans purvey over 90% of the more than $50 billion dollars distributed every year within the various FFELP categories.

One way the definition of need was quickly broadened was to create two different kinds of Stafford loan: subsidized and unsubsidized.

In the first case, the Federal Government pays any regard that would normally accrue from the space the loan is originated until payments begin. Normally, no payments are due while the student is in school half-time or more, and for a six-month grace period after leaving. Students can request payments to begin earlier.

Since the interest is subsidized, these loans are generally need-based, meaning that aid officials look to student and family income in deciding whether the student qualifies. A number called the EFC (Expected Family Contribution) is used, by examining income information provided on the FAFSA (Free Application for Federal Student Aid) application. Available at: http://www.fafsa.ed.gov/

About two-thirds of all subsidized Stafford loans are provided to students whose parents have an Adjusted Gross Income of under $50,000 per year. Another 25% are awarded to those in the $50-100,000 per year range. But the definition of ‘needy’ is indeed flexible, since slightly less than 10% of subsidized loans are granted to students whose combined family income is over $100,000.

For those students who don’t qualify for subsidized loans, most will be eligible for an unsubsidized Stafford loan. Keep in mind, though, that the interest accumulates from the day the loan money is disbursed until the day it’s paid off. Even in the case of a modest $4,000 loan, at 6.8% the first year of interest is circa $230. That $230 is then added to the $4,000 and interest charges calculated on the higher figure.

Actually, the example is a little oversimplified, since amounts are calculated monthly not annually. The exponential equation hidden it is a little complex, but sample scenarios can be played with by using a loan calculator. A popular one is available at: http://www.bankrate.com/brm/mortgage-calculator.asp.

Since $4,000 is a very low amount as student loans go, the numbers can actually be absolutely a bit higher. The average undergraduate student (and/or parent) borrows about $15,000 per year in a mix of subsidized and unsubsidized Stafford and other sources.

A detailed breakdown of what can be borrowed by who is available at: http://studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp or http://www.salliemae.com/get_student_loan/find_student_loan/undergrad_student_loan/federal_student_loans/stafford_loans/ Fees apply to fall-back the loan, so students will actually receive less than the stated amounts.

Tip! on the assumption that you have two kinds of loans, make sure to refinance them separately.

It is also advisable that you refinance your federal student loan first, before any other private loans.

Despite high education costs and the cost of borrowing to meet them, students and parents have some advantages today that didn’t exist even ten years ago. The Internet has changed the way financial aid is researched (and granted) in additional ways than one.

Today it’s child´s play to quickly access an enormous amount of data. Interest rates, qualifying criteria, loan limits and considerable more is readily available. on the contrary that also hints at one of the difficulties of easy data - the possibility of too much of it. The old axiom in the information technology business sums it up best: it’s like drinking from a fire hose.

Having so much information flood in, especially given the variety and complexity of loan programs today, bottle make analyzing it all that much more difficult. To overcome that problem, one aspect of the old-fashioned methods is still very helpful: seeking personal advice.

For students still in high school, planning a college education and seeking ways to pay for it, the school counselor is a good first begin. These professionals are there to help students sort through the bewildering array of choices, and to point out some of the potential advantages or pitfalls of different ones. But, unfortunately, the quality of that advice can vary completely a lot.

Professional loan counselors are not only up on the latest information, but go through regular courses each year to keep up-to-date and keep their professional standing. But, the downside is that they usually charge for their services. A few minutes of advice on the phone or in person is typically free, but any detailed program is for a fee. That’s understandable, since that’s how they make a living.

The online versions of professional loan counselors also have similar pros and cons. Since there’s so much variety on the web today, finding a mature source can be tough. The advantage of personal contact, which enables judging their reliability by hearing their voice or since their face, is missing. But with social networks and blogs growing so much the past few years, that drawback has largely been outweighed.

It’s possible today to get dozens of reliable recommendations from individuals you interact with regularly. When reading comments by new forum members it can be hard to judge the assistance of his or her opinion. But over time, you get to know who is providing objective and reliable information. Before long, you can locate one or more professionals to get more in-depth advice.

One place to start is with a site such as http://www.finaid.org/ or http://talk.collegeconfidential.com/forumdisplay.php?f=7

Be sure to allocate at least a year to consider the available options, two years would be better. Saving and planning can and should start much earlier, of course. But getting information that is anticipated to be useful means not putting too much weight on circumstances that exist several years before beginning college. Interest rates, available programs and qualifying criteria do change over time. And, who knows, the Internet innovators may come up with something even better in the future!

Tip! In considering obtaining student loans, it is important that you pull together basic facts about your finances and your financial status.

A scholarship, as distinguished from a student loan, is money given that does not have to be repaid. There are scholarships for academic extreme-achievers, athletes, Pacific Islanders and children of local widows. In short, there is a type of scholarship to suit any possible circumstance.

The trouble is finding them.

Most scholarships are academic oriented. They require excellent grades. But that is much just the first cut. In order to come first out over those with similar GPAs or SAT scores, the student often has to have other elements in his or her background. Sometimes that’s an award from Westinghouse or other science-based competition. But it could be having a history of community service. The variations are endless.

One of the easiest pathways to get started is to speak with a school counselor, to find out what’s available. But take what they say with some skepticism. They’re often overworked and not aware of the modern information. Continue that research by doing some web searches and dig into the thousands of possible scholarship programs.

Two of the larger sites that have massive, up-to-date information are FastWeb (www.fastweb.com) and CollegeAid.com (www.collegeaid.com/college-scholarship-search.html). Both have extensive lists of scholarship programs with amounts and a brief blurb on application requirements or criteria. In some cases, the initial criteria are as simple as having (or expecting soon) a high school diploma and being a U.S. citizen. Others require acceptance at a university and a specific residence.

There are scholarships for the children of veterans, for those who intend to major in Health Sciences, or those who are residents of Virginia, just to honour three. Most require good grades, but not all. Many require the student to be from a low-income family, but others scrutinize to ethnicity. In other words, they cover the entire spectrum of possibilities.

Some scholarships require evidence of more than just an outstanding grade point average or good test scores, or facts about personal background. Some will require that the prospective winner write an essay, as short as 250 words or as long as 5,000. The essay may be oriented toward listing personal achievements or merit, or the grantors may want to find out the prospect’s views on the world. Here again, they run the gamut.

Most scholarships are free, in the sense that the money never has to be repaid. But it isn’t always the case that the recipient receives or gets to keep the entire official amount. Some are taxable. According to the IRS, the next criteria apply to scholarships, with respect to taxability

Qualified scholarships and fellowships are treated as tax-free amounts if all of the following conditions are met:

- You are a candidate for a degree at an educational institution,

- Amounts you receive as a scholarship or fellowship are used for tuition and fees required for enrollment or attendance at the educational institution, or for books, supplies and equipment required for courses of instruction,

- The amounts received are not a payment for your services.

See also http://www.irs.gov/faqs/faq4-8.html

The only way to find out what’s out there, and if you’re qualified or have a chance to receive one, is to dig into the discrepant programs and start applying. It’s a lot of effort, but it just proves once again that there really is no such thing as a free lunch. Good luck!

Tip! The Graduated Repayment Plan is another direct student loan consolidation plan with a repayment period between 12 and 30 years.

Many of the common Federal student loan programs require no credit check and provide substantial sums for financial aid.

Unsubsidized loans, in which any interest accrued while the student is in school making satisfactory progress, are among the most desirable.

But these programs are need bjust ased and ofttimes carry other criteria that cause it difficult to qualify. yet when students (and parents) do qualify, the loans only cover a portion of the total cost of education, in many cases. When students and their parents find themselves in that situation, they can turn to in camera loans to make up the difference.

Private loans, too, own pros and cons, however. A credit check is all but universally required. For those with a good credit history that’s no problem. But ‘good’ is a relative term and if it isn’t good enough, borrowers will find themselves paying higher than optimal interest ratios.

Beyond the stated interest rate, there are other financial implications of private loans. Fees are often tacked on (or, rather taken off) nominal loan amounts. A relatively modest loan of $4,000 may easily have 4% in fees applied prior to distribution. That means $160 of the total is never seen by the borrower, but must be repaid. As a rough guide, every 3% of fees is equivalent to an additional 1% on top of the stated interest rate.

Private loans do have certain advantages, however.

The obvious one was alluded to above: the funds are available. Private lenders exist to make a profit on the interest and fees they charge. They have an interest in making money available to borrowers. As a consequence, they will work very hard to ensure that every applicant qualifies. Federal lenders, on the other hand, have an inflexible set of criteria and there is typically no real solicitation if your application is denied.

Not having to deal with that impersonal, often illogical, bureaucracy is another advantage of private loans. Lenders maintain customer service departments that, though understaffed, exist to answer questions so that customers can bring answers. Federal loan programs typically have contacts and help available as well. But the answers one gets are hit or miss in terms of quality.

But many other pragmatic considerations apply that make private loans desirable.

Neither students nor parents have to fill out the FAFSA (Free Application for Student Aid) form(s), nor supply the same supplemental documentation. Private loan applications tend to be simpler and the whole process easier. But, fees and interest rates may be higher or lower depending on the individual program.

The most desirable private loans will have no fees and interest rates that are about equal to the prime rate - 1%. The ‘prime rate’ is the rate banks charge one another or their largest, most favored customers. Getting a rate at prime is a good deal, getting a rate at 1% below prime is a enormous deal. But be sure to check for any fees. As described above, fees can substantially add to the total cost of the loan.

To get that classification of loan it’s usually necessary to have a great credit history and/or get a loan with a co-signer who has excellent credit. That situation may or may not apply to you. The only way to know for sure what is available is to dig into the specifics. One great place to start is to look at the table on a site such as http://www.finaid.org/loans/privatestudentloans.phtml

Use a loan calculator, such as that available at http://www.bankrate.com/brm/rate/calc_home.asp to run through some sample scenarios, once you have some figures in hand. Be sure to include all the actual costs over the lifetime of the loan, to get a picture of the real cost.