Show Glossary of Terms

Many students are eligible for some type of free financial aid, either in the form of need-based grants, or merit scholarships. However, grants and scholarships do not always provide enough funds to cover rising college costs. After you have applied for and received all possible free aid, it might be time to take out a student loan to meet the rest of your educational expenses. Federal and state governments have devised guaranteed student loan programs that allow students to borrow money at low interest rates to make up the difference that free aid doesn't cover. Before you decide to borrow money, however, there are some important issues to consider:

• What are the interest charges?
• How long do I have to repay the loan?
• Does repayment begin during or after college?
• What is the minimum payment required per month?
• Will my income after college cover all of my expenses, including loan payments?

At the time of disbursement, loans may seem like free money since repayment is not required immediately. It is important to remember, however, that you will eventually have to repay all the money you've borrowed, plus interest. Some borrowers may have the idea that the government is too big and bureaucratic to keep track of all the student loans they issue. In the past this was often the case. Yet, even though recent legislation has increased the total amount of loan money available, default rates are dropping, standing currently at about 7 percent.

To avoid joining those who find themselves deeply in debt, a good exercise to perform before you decide to borrow money is to seriously consider your current financial situation and then project what your future income and expenses will be following graduation. While this will certainly be a difficult task, it could prevent you from extending yourself beyond your financial means. To financially plan your future, you need to estimate the total cost of your education, then estimate the amount of money you expect to earn after graduation in your chosen profession. (See the entry-level income chart at the end of this chapter.) Now deduct your cost of living expenses to determine how much money you have left for monthly loan repayments. A financial advisor or loan officer at a bank could help you with any of these formulas.

Subsidized vs. Unsubsidized Loans

Students and parents should be aware that government loans may be either subsidized or unsubsidized. A subsidized loan does not accrue interest until the student graduates or leaves school and is obviously the best option. Unsubsidized loans are less desirable because interest on the total loan amount accrues while the student is in school. Here is a breakdown of government loans:

• Stafford Loan: These loans are either subsidized or unsubsidized. Your school makes the final determination based on financial need.
• PLUS: These loans, available to parents of students, are unsubsidized, accruing interest while the student is in school. Parents do not have to prove financial need to secure one of these loans.
• Perkins Loan: These loans, based on "exceptional" or "extreme" need, are subsidized by the government and generally have a lower interest rate.

Loan Repayments

When you sign a promissory note, you are agreeing to repay all the money you borrowed. A promissory note is a binding legal document stating the amount of money you are borrowing and the terms under which the loan is to be repaid. Repayment on almost all of the federal and state student loans begins after the borrower has graduated from college or drops below half-time enrollment status.

Grace Periods

A grace period typically follows this type of a change in student status. A grace period is a specific amount of time before loan repayment begins. Most grace periods last between six and twelve months, depending on interest rates and the type of loan.

• Subsidized and unsubsidized Stafford Loans have grace periods of six months after graduation, during which time students can organize finances and find jobs. The difference, however, is that interest continues to accrue with unsubsidized loans, while there is no interest charge for subsidized loans until the day the first payment is due.
• Repayment of PLUS loans starts sixty days after the final loan disbursement; however, interest accrues as soon as you receive the first disbursement
• Perkins Loans allow grace periods of nine months.

At the end of the grace period, if the lending agency has not already contacted them, students are responsible for contacting the agency carrying their loan to inquire about repayment schedules and methods. Loan payments are usually made on a monthly or quarterly basis. As a borrower, you are responsible for making these payments on time. If you are very late or fail to make payments, your loan will become delinquent. Delinquency is defined as "failing to make loan payments when they are due," and your loan will remain as such until the overdue balance is settled or other arrangements are made. Other arrangements for loan repayment are discussed within specific loan sections later in this report.

Loan Defaults

If monthly payments are delinquent for six months (180 days), or quarterly payments have not been made for eight months (240 days), your account is then in default. Once a loan is in default, it is purchased by a credit agency that collects the loan money directly from you. Borrowers who allow their loans to reach this stage are subject to the following restrictions:

• Borrowers will no longer be eligible to receive state or federal financial aid assistance
• The loan(s) will be referred to a collection agency
• Loan payments may be deducted from your paycheck
• The IRS may hold your tax refund and use it for loan payment
• Your credit rating will go down, making it potentially difficult to be approved for car and house loans or establish other forms of credit
• Borrowers are subject to possible legal action for retrieval of payment
• Borrowers are ineligible for deferment or forgiveness of the loan balance

There are several options to prevent you from defaulting on your loan(s). Guarantee agencies offer borrowers the chance to defer payments for financial hardship and other reasons, and there are even situations in which a portion of your loan balance may be forgiven. Keep your loan agency informed of your financial situation. Loan officers want to work with you to prevent delinquency or default.

Student Loan Consolidation

Loan consolidation is a repayment option for students with multiple outstanding loans. Consolidation can help you avoid default or delinquency. If you borrowed money from several different state and federal loan programs to cover the cost of your education, you may be able to consolidate those loans into one. Consolidating your loans will most likely lower your monthly payments and make the repayment process simpler because you only make one monthly payment.

Eligibility for the government's Loan Consolidation Program depends on the amount of money you owe and the types of loans you have received. Students must have borrowed at least $5,000 from one or more of these programs:

• Perkins Loans
• Stafford Loans

The interest rate on consolidated loans is no more than 8.25 percent for Stafford Loans and no more than 9 percent for Perkins Loans. Sometimes, however, a loan agency averages the interest rates from all your outstanding loans and uses that rate, which is typically higher than 9 percent. The total amount you owe, interest rates, and the amount of your monthly payments are determined by the agency that carries your loans.

To consolidate your loans, you must have begun to make payments or be in the grace period before repayment begins. Borrowers who are more than ninety days delinquent in payments or are in default will not qualify for this program. If you are eligible for and interested in consolidation, contact your lending agency and tell them how much you owe on your loans and the kinds of loans you have. If you have Stafford or Perkins Loans, the agency will purchase them from the federal government and handle all collection and payment methods.

Emergency Loans

Some colleges and universities offer students some type of temporary loan assistance. To find out about these loans, visit either an Emergency Loan Department or an Office of Student Accounts. The school acts as a direct lender to students in need. Emergency loans are typically either interest-free or come with low interest rates. These loans are granted to half-time or full-time students who are unable to meet education-related expenses.

Funds are available to students for:

• Tuition
• Rent
• Books and supplies
• Miscellaneous costs

These loans are also granted to students who have applied for, but have not yet received, financial aid. It is important to remember that you are responsible
for tuition payment and other school-related expenses even if your financial
aid has not been disbursed. Undergraduates who are first-time federal loan borrowers
must wait thirty days following the beginning of classes to receive their money.
In these cases, your school will loan you the funds to cover these costs until
your aid arrives. Once your aid is disbursed, most schools will deduct the amount
of your emergency loan from your principal financial aid balance.

Applying for an emergency loan is a simple process at almost every institution. Generally, each application takes only about five to ten minutes to complete. Usually, the only information required for these forms is your name, address, student identification number, two or three references, and a general explanation of your need. Most schools charge a processing fee that is added to the principal balance and due when the loan is repaid.

Emergency loans, when available, are not granted if the student has an unpaid balance or has previously defaulted on an emergency loan. The amount of money each student is eligible to receive depends on the student's expenses. Most schools have a set amount for tuition and other expenses (typical amounts range from $50 to $500), but students are eligible to borrow more than this amount with a co-signer. The co-signer can be a parent, legal guardian, or responsible adult who signs a promissory note agreeing to fully repay the amount borrowed should the student be unable to do so. Students usually have between 30 and 90 days to repay the loan, depending on the institution. If you can't meet the deadline, most schools will grant extensions, depending on your financial situation.

Emergency loans are not as common at colleges and universities as they once were, so it's best to explore other options before looking into this type of loan. Remember, your college or university is willing to help you in any way possible. If you are having or anticipate having difficulty meeting your tuition, living, or other expenses, contact the financial aid office at your school for information on all your options.

Bay Banks Education Financing Programs

The Bay Bank TERI Loan is a privately funded loan available to undergraduate students. Students who want to apply for this loan are required to have a cosigner. The applicant can borrow up to the total cost of his or her education. The interest varies according to the prime rate (prime rate plus 2 percent). The student must pay the interest while in school, but can defer payment of the principal until after graduation. Loan recipients have up to twenty-five years to repay the loan, depending on the amount borrowed, and payment begins forty-five days after graduation.

The Bay Bank Pep Loan is also privately funded and is available to graduate students enrolled at least half-time in a graduate degree program. The interest rate is variable and dependent on the prime rate (prime rate plus 2 percent). Recipients have up to twenty years to repay their loan, depending on the amount borrowed. For more information and application forms for either loan program, call: (800) 322-8374

Nellie Mae Excel Loan Program

This Nellie Mae loan program was bought by the SLM Corporation in 1999. This Organization offers a wide array of loans such as Federal Stafford, Federal PLUS, private loans and much more! Nellie Mae's website offers counseling on debt management and access to loan applications which may be downloaded and printed out. You can visit their website at http://www.nelliemae.com/

Share Loan Program

This program is available at only thirty-two schools. It is an income-based program, where applicants can borrow up to the total cost of their education. Students who apply might be required to have a cosigner for the loan. The interest rate varies, depending on the prime rate (prime rate plus 2 percent monthly or plus 3 percent yearly). Recipients must pay the interest while in school but payment of the principal can be deferred until after graduation. The payback period ranges from four to twenty years, depending on the amount borrowed.

Gradloan Program

This loan program is available to graduate students and is based on income and credit status. The interest rate varies, depending on the prime rate (prime rate plus 2 percent monthly). Recipients must pay the interest while in school but payment of the principal can be deferred until after graduation. The payback period ranges from four to twenty years, depending on the amount borrowed. For more information and application forms visit Nellie Mae's website at http://www.nelliemae.com/

The Education Resources Institute of Boston (TERI)

The TERI Supplemental Loan program is available to undergraduate students or their parents. Eligibility is based on income and credit status, and students who apply may be required to have a cosigner. Applicants can borrow from $2,000 to $20,000. The interest rate is variable, depending on the prime rate (prime rate plus two percent). Payment of the principal can be deferred for up to forty-five days after graduation. Recipients must pay interest while in school. The payback period is twenty-five years. For more information and application forms, call: (800) 255-TERI.

TERI Professional Education Plan (PEP)

This loan program is available to graduate students. Eligibility for this program is not based on need but on income and credit status. Applicants can borrow a maximum of $20,000 per year. The interest rate is variable, based on the prime rate. Deferment of payments is allowed. For more information and application forms, call: (800) 322-8374.

It's important, as a borrower, that you not only are aware of your obligations, but also of your rights. You are entitled to an approximate loan repayment schedule that should include the amount, number, and exact date of all your loan payments. If your loan repayment schedule includes a grace period, you have a right to that entire length of time before your repayment commences. You should also be informed of available alternate payment options, such as loan consolidation, as well as the conditions under which the loan(s) can be deferred or canceled.

Prior to receiving your first loan disbursement, the college or university you attend and the organization that is carrying your loan must provide you the following information in the entrance interview:

• The total amount of the loan you are borrowing and the current interest rate charges
• Information on extra charges (that is, any origination fees and insurance), such as when and how they will be collected from you and how much they are
• The maximum amount of money that can be borrowed each year through the program
• Time allotted for repayment
• Current statement of loans already owed
• Example of a monthly repayment schedule and an estimate of the total amount that will be owed
• How borrowing will affect your eligibility to receive other forms of aid
• The date you must begin repayment of your loan
• Loan consolidation and prepayment options
• An explanation of what it means to default on a loan

Following graduation or the completion of your studies, you must be given an exit interview by your college or university and/or the company that is carrying your loan. In this interview, you should receive the following information:

• The total amount of money you owe
• The current interest rate and all accumu- lated interest charges owed
• Amount of approximate monthly pay- ments
• Any extra charges or fees that may ap- pear on your monthly statement
• All the information needed about the organization that is carrying your loan
• Advice on managing your payments
• Deferment, default, and cancellation guidelines
• Consolidation, repayment, and refinancing options

Academic Management Services (AMS)

This plan allows families to pay for college expenses with monthly payments.

This is not a loan but rather a budgeting plan. Applicants can budget up to the total cost of their education, and an automatic life insurance policy is included with the plan. There are no interest charges, and the school determines the amount of the monthly payments and the length of the payback period. There is a $50 application fee.

AMS Extra & Academic Credit Line

This program is based on income and credit status. Applicants can be approved for a minimum credit line of $2,500 to a maximum of $25,000. The interest rate is variable and dependent on the prime rate (prime rate plus 4 percent). There is an annual fee of $25 for loan borrowers, which is waived for the first year. The minimum monthly payment is 2 percent of the outstanding balance, but recipients can choose to pay the interest only, for two, four, or six years. This program utilizes a revolving credit line; therefore, funds become available as payments are made. For more information and application forms, for either the Academic Management Services program or the AMS Extra & Academic Credit Line program visit their website at www.tuitionpay.com/

This chart is useful if you find you need to take a student loan to meet all of your expected expenses. Loans, for the most part, require repayment arrangements to begin soon after graduation. To help you plan ahead, use the following list of average salaries to determine your approximate income after college. Because it would be impossible to list every type of job, only a representatvie selection is provided here.

Graduates are increasingly rejecting public-sector jobs because of the low pay these jobs offer, but the number of high-paying private sector jobs is limited because of recent corporate downsizing. On the other hand, jobs requiring technical skills and those involving the health care industry—especially care for the elderly—are expected to boom over
the next few years. To find out more about salaries and employment predictions,
you can visit the U.S. Department of Labor Statistics' Occupational Handbook site at http://www.bls.gov/oco/,
from which the statistics to the right were gathered.

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