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As mentioned earlier, dependent students can first only apply for the subsidized loan. One reason for this is to keep the students loan debt low. A second reason is to ask the parents to assist with the student's education. The parents then also have an opportunity to apply for an educational loan, called a Plus loan. While parents can borrow as high as the total of a student's educational budget, less any aid that has already been received, this loan is based on ones credit. Another difference between the Parent Plus loan and the Stafford loans is the repayment period. While students do not need to repay their loans until six months after becoming less than a half time student or graduating, parents will receive their first statement 60 days after taking out the loan. They do have the option of working with the lender to defer payment until the student graduates. Similar to the unsubsidized loan, the amounts borrowed are not determined by the EFC. There is no collateral required, and, the interest rates are low. For the 2005 to 2006 school year, the interest rate was 6.1%. Compare that to a home equity loan which averaged 7.5% or higher, or the interest earned on a credit card, about 13.8%, and your parents will see the advantage of applying for this type of loan! A parent will be asked to apply for this loan and be denied before a dependent student will become eligible for an unsubsidized loan. Remember when we were talking about the FAFSA, and how it was an important decision deciding which parent would be asked to provide financial information? Well, this is the time to return to that conversation. The parent you chose, assuming that only one parent was chosen, is the only one that can apply for this parent loan. With both the Stafford loans and parent loans, the student and or parents have the option of choosing which bank they wish to have as their lender. There are some advantages to choosing one bank over another, including an existing relationship with the bank. Such advantages include rebated bank fees, and a policy of never selling the loan to another financing organization. If your school is not already working with your bank or credit union of choice, you can speak to that lender and request the necessary forms to start your loan. A good rule of thumb is to stay with the same bank for the life of your educational career. The advantage with this is that when you do begin repayment, you are only receiving one statement rather than multiple ones. Of course, in addition to the federal loans, you are always welcome to apply for outside loans. In doing so, remember that these will definitely take into consideration your credit score, and you may be required to have a cosigner. The advantages to taking out an outside loan include your choice of who the lender is, and there is no limit to the amount borrowed. However, you may or may not have a choice in when repayment will be required. Some lenders may consider the fact that you are a current student and unable to repay until your graduation. Others may only give you a certain number of days before you will need to make payments. Also, the interest rates will most likely not be as low as those on your student loans. Stafford loans, as well as being guaranteed, have been in almost every case, offered with the lowest interest rate of any other loan. When applying for an outside loan, you also have the option of having the bank pay your school directly, and allowing the school to take on the work of issuing you a check of the overage; or you can ask the lender to pay you directly, and it will be your responsibility to pay the school, or set up some type of payment plan.
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