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Basics of Student Loans

Author: John Nowly

Upon receipt of your student aid report and completion of verification, if needed, you are immediately eligible for student loans. These are guaranteed loans, regardless of your credit rating. That's right! Unlike any other loan you'll ever apply for, student loans are made available to you, by the government, regardless of how good or bad your credit rating is. The only reason you would not be able to receive a student loan is if you've ever defaulted, or not made continuous payments on a previous student loan.

Now these are funds which must be repaid, financed through a bank or credit union. So, remember that though you are receiving money from the government for school, you are also incurring debt. However, there is good news. These student loans do not have to be repaid until after graduation, or until you become less than a half-time student. Even after that point, you will have a six month period, called a grace period, before you receive your first statement requesting a monthly payment.

The process of applying for these loans is simple. There is a standard form asking for your demographic information and two references. Of these two references, they ask that one be a relative. As I mentioned before, there is no credit check, so you may be wondering what the reason is behind asking for references. Well, the references serve as locators for you in case your lender ever loses contact with you.

Finally, prior to receiving any loan money, you will be required to go through a meeting called an entrance interview. Some schools will design group meetings for the entrance interview. Other schools will direct you to a website where you can read information similar to this, and then answer questions about what you have read.

There are two types of loans: Stafford, and Perkins. Under the category of Stafford loans, there are two subheadings - subsidized and unsubsidized, and one type of parent loan, called the Parent PLUS loan. Think of the word, subsidize, as interest being paid. With that in mind, a subsidized loan is one in which the government pays your interest while you are in school at least half time.

An unsubsidized loan is one in which your interest accumulates while you are in school; though you do have the option of paying that interest. A subsidized loan is also one that is based on need, as determined by your EFC; while an unsubsidized loan is strictly based on your student budget. As a dependent student, you are immediately eligible for the subsidized loan.

A little more work is required for a dependent student to receive the unsubsidized loan, which will be described in the next slide. On the other hand, an independent student is immediately eligible for both the subsidized and unsubsidized loans. Below are the maximum amounts of each loan as determined by your academic level, or year. These amounts have remained constant for more than ten years, and as of February 2006, there has been no action to increase or decrease them.

You will need to speak to your respective school to find out how many credits need to be completed to reach each successive level of school. You can also ask for a copy of your student budget, so that you can be sure you are receiving the maximum amount of student loans for which you are eligible.

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