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 Comparing Supplemental Loans

Many families find that supplemental loans are an important resource for financing college. Federal Direct PLUS Loans and private education loans are two available options for families who need additional funds. These loans are not included in the U-M financial aid package; students and families must apply for them separately:

  • Direct PLUS Loans are part of the federal Direct Loan Program and are for graduate students and parents of dependent undergraduates. The loans have favorable loan terms and are backed by the federal government, which has a record of good service. Several types of repayment plans are offered.
  • Private student loans are offered through a variety of banks and other lenders and are available to all students who qualify. The best rates are offered to borrowers who have good credit and/or who have a cosigner with good credit. Note that the majority of lenders require a minimum of half-time enrollment at the point of disbursement of the loan.

Supplemental loans may be of interest to students who:

  • have little or no eligibility for need-based financial aid programs,
  • need additional resources beyond their financial aid in order to pay for their college costs,
  • are classified as nonresidents and need additional resources to fill the gap between need-based financial aid and college costs, or
  • have circumstances (such as a medical condition) leading to unusual costs above the standard cost of attendance

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COMPARING THE TERMS OF PLUS AND PRIVATE LOANS

When students and parents are looking for a supplemental loan, we encourage them to compare Direct PLUS Loan interest rates, credit check conditions, terms, and repayment plans with those of private loan options. Direct PLUS Loans offer a number of distinct advantages, including:

  • Stability of federal funding
  • Option to consolidate with other federal loans
  • Fixed interest rate
  • Several options of repayment plans
  • Deferment option 

The table below compares the terms of the Direct PLUS Loan program with terms typically offered by private lenders. Included are some questions to ask when you are considering loan options.

— Comparison of PLUS and Private Loan Terms —

Federal Direct PLUS Loans Private Education Loans

PROGRAM SPONSOR:

U.S. Department of Education (federally funded)

PROGRAM SPONSOR:

Banks and loan companies

> Will the company sell your loan to another company?

> How long has the company been offering student loans?

ELIGIBLE BORROWER:

Graduate student or parent of dependent undergraduates

ELIGIBLE BORROWER:

Student who is a U.S. citizen or permanent resident

LOAN AMOUNT:

Eligible for Cost of Attendance minus financial aid offered. No cumulative loan maximum.

LOAN AMOUNT:

Loan amounts often are Cost of Attendance minus financial aid offered. Sometimes set by school. Often include a yearly and/or cumulative cap (can be as high as $250,000 for undergraduates).

INTEREST RATES AND FEES:

  • Variable-fixed interest rate of 6.84% (effective July 1, 2015)
  • 4.292% origination fee (for loans disbursed before Oct. 1, 2015; rate changes to 4.272% for loans disbursed on or after Oct. 1, 2015) 

INTEREST RATES AND FEES:

  • Fees range from 0% to 12%, depending on borrower's credit. Some have origination fee.
  • Interest rates generally PRIME -1% to +7.75% or LIBOR +1% to +8%

> What is the interest rate of the loan? Is it fixed or variable? If it is variable, does it have a cap?

> How is the interest rate calculated and capitalized?

> Does the lender charge any fees?

REPAYMENT TERMS:

  • Repayment of principal and interest begins 60 days after disbursement
  • Repayment period up to 25 years
  • No penalty if prepaid
  • Multiple repayment plans are available

REPAYMENT TERMS:

  • Ranges from 0 to 25 years, often depending on amount of loan

> When does repayment begin?

> If payments begin immediately, can you afford to make the monthly payments?

> If payments begin later (deferred), how will the interest be calculated?

OTHER INFORMATION:

  • Basic credit check required:  Borrower cannot be 90 days or more delinquent on the repayment of any debt (with additional flexibility for mortgage or medical debt) or the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment or write-off of a Title IV debt during the last five years.
  • Both loans can be consolidated.
OTHER INFORMATION:

  • Cosigner may be required and/or may reduce interest rate and loan fees.
  • Interest rates, fees, and loan limits depend on credit history of borrow/cosigner, loan options, and repayment schedule.
> What do other students have to say about the company? This is one of the best ways to gauge a company's customer service reputation. Customer service will be important to you when you begin repaying the loan.



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HOW MUCH TO BORROW

To find out how much you may be eligible to borrow with the Direct PLUS Loan program or a private lender, select Financial Planning Calculators from within Wolverine Access.

Remember, borrow only what you absolutely need: What you borrow today you must pay back later (with interest)!  You determine how much or how little to borrow (up to the maximum allowed). For more information on repaying your loans (including a loan repayment chart), see Repaying Your Student Loans or contact the Office of Financial Aid.

 

LOANS FOR STUDENTS IN THE PERFORMING ARTS TECHNOLOGY PROGRAM

By special arrangement with the U-M Computer Showcase, students enrolled in the Performing Arts Technology program in the School of Music, Theatre & Dance may have the cost of their required computer and/or software purchase added to their student account balance for the Fall semester. After you place your order with the Computer Showcase, the Showcase will notify the Office of Financial Aid of the amount of your purchase and this will be added to your financial aid cost of attendance (budget) and to your student account balance for Fall semester. Taking this step will enable you to cover the cost of the purchase using one of the loan options described on this page. Please note: If you plan to use one of these loans to cover only the amount of your Computer Showcase purchase, you must specify that your loan period is fall term only.

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