Types of college loans

- [Interviewer] We're here today with Sean Logan, director of college counseling at Phillips Academy. Sean, one of the big decisions that students face is that of student loans when they're going through the college admissions process. Can you kind of explain to me where are the different places I can get loans and then how that impacts what those options are? - [Sean] Sure, so the government is probably the best source of loans right now. And, you know, there's also smaller state loan programs that are out there, and that varies by states. - [Interviewer] So that's sort of the federal government, then there's the state government. - [Sean] Yep. - [Interviewer] Okay. - [Sean] There are colleges that will do their own institutional loans and then there are private institutions that will do loans. - [Interviewer] Okay, and of all these different options, where should I begin? - [Sean] So, with your financial aid package, colleges will help you sort of understand this, but in general, colleges are gonna use a lot of federal money at first and try to package you that way, and again, it's generally the best type of loan you can get. There are need-based loans that are out there so you have to have certain levels of income to qualify. The first being that the Federal Perkins loan generally for more lower income students. That has a lot of really positive perks to it. They include things like a fixed rate. It has no origination fee. You have the flexibility with the government paying all of the interest until six months after you graduate, so that's a great factor for that. - [Interviewer] Okay, so you're not gonna pay any interest while you're in school. - [Sean] While you're in school, and you do have, again, some flexibile terms with deferring that if you go to graduate school. And again, you can take out in your first year up to 5,500 dollars, uh, you can take out up to 5,500 dollars as an undergraduate for the Federal Perkins loans. - [Interviewer] Okay, and that's up to 5,500? And is that per year or overall? - [Sean] Uh, a year. - [Interviewer] Okay, got it. Are there any other kind of need-based loans that are available from the federal government? - [Sean] There are, so there's also subsidized Stafford loans. They're not quite as good terms as the Perkins loans, but again, still very good. Probably the next best loan you'll find out there. There is an origination fee to that. Right now, the interest rate is actually a little bit lower than the Perkins loan, but that will go up depending on the markets. Again, it has the same maximum of 5,500 dollars per, for this year, for your first year. - [Interviewer] And is that 5,500, does it stay 5,500 every year or does that change? - [Sean] So that can go up as you're a sophomore, junior, or senior, that amount can go up. So you have a little bit more flexibility with that. And the subsidized Stafford, also, their interest rate is also paid for by the government until six months after you graduate. - [Interviewer] I see, so that's also no interest paid while in school. - [Sean] Correct. - [Interviewer] Are there any loans that the federal government offers that aren't need-based? - [Sean] There are. Now, one thing to remember is you still, you need to fill out a FAFSA form to qualify for any federal loans, so even if you, go ahead. - [Interviewer] Just so I understand, so it's even if I don't have financial need, my family makes a lot of money, I still fill out the FAFSA just to get access to federal loans. - [Sean] Correct, and that's an important fact that people don't realize. So there is an unsubsidized Stafford loan and again, it's not quite as good of terms as the other two we've talked about, but it's still a very good option for many families. - [Interviewer] Okay, so I know that the rates for the Stafford subsidized and unsubsidized are the same so what are the actual differences between the two loans? - [Sean] So the biggest difference is is that the federal government will not pay the interest while you're in school. - [Interviewer] Okay, so they're not gonna cover you. - [Sean] Right. - [Interviewer] Okay, and then, are there any other kinds, you mentioned there was one other kind of federal loan that's not need-based. - [Sean] There also is something called a direct plus loans which a parent can take out instead of the student. It's in the federal program, so it still has some of the benefits of that program but it's a higher rate, but again, it still has a lot of the other benefits of the federal program and it's backed by the federal government. - [Interviewer] Great, okay, great, so that makes, those are for the federal government loans. What about sort of state or college sources. What are those loans all about? - [Sean] So again, that really is gonna depend on the state and it's really gonna depend on the college. So, those could be very good options. Personally, when I was in college I had some of my loans were college loans and those loans were actually, had no interest rate at all. So I was basically allowed to borrow, again, in that example we used before, I borrowed 5,000 dollars but there was no interest at all. All I paid back over the life of the loan was the 5,000 dollars, so college loans can be a really good opportunity, but again, not all colleges offer them and some of them don't have as good of terms as say the federal government does. - [Interviewer] Okay, so that's really sort of state by state, college by college. There's not sort of a general rule of thumb, it's just worth looking into. - [Sean] But it's worth looking into. The colleges will, if you qualify for them, they'll give you those options. At the state level, it's also worth looking into. The colleges will generally be able to sort of let you know if you qualify for these loans and you can decide how good they are for your family and your situation. - [Interviewer] Great, and then you mentioned federal, state, college, and you also mentioned private loans. Where do those kind of fall into this equation? - [Sean] So, I think in terms of the best terms, the most flexibility, they're probably at the, you know, they would be my last option. Now, they could be very good options for a family that still need money, but I would say if you've exhausted those other options, this is, that's probably the next place to go. You know, they aren't subsidized. They are not need-based. And they definitely require, most of them will require a parent to commit to repay the loan if the student fails to. The interest rates will vary by the different institutions. So, banks, other financial institutions typically have the highest interest rates and the least flexible payment options. - [Interviewer] So then, why wouldn't, as a student, why wouldn't I just take all Stafford loans or Stafford subsidized, or you know, if I didn't qualify, Stafford unsubsidized. Why would I even bother looking at something like a private loan. - [Sean] Well, unfortunately, with a Stafford loan, right now, in the first year the most you can take out is 5,500 dollars and you may need a little bit more than that for loans. So, you may need to look at other options and so that's why you would move down. With a Perkins loan, you may not qualify because you don't meet the income standards and for the subsidized Stafford loan, you may not qualify for that. So, again, you may, you would definitely qualify for the unsubsidized loan, but then if you need a bit more you may have to go to these other alternatives. - [Interviewer] I see, so if you kind of pass that yearly maximum on the Stafford loans, you don't qualify income-wise for Perkins, then it'll be down to either a plus loan, which has a fairly high interest rate, state or college loan, which kind of varies, or the private loans, and those can have variable interest rates and maybe not as good repayment terms. - [Sean] Right. - [Interviewer] But it sounds like first and foremost, if you can get access to Stafford or Perkins, that's the place to start? - [Sean] Yes, absolutely. - [Interviewer] Great, thank you so much.