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.

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