|
Federal PLUS Loans and Private Educational Loans
Many families find that supplemental borrowing provides an important resource for financing educational expenses. The borrowing options described below may be of interest to those who:
-
have little or no eligibility for need-based financial aid programs,
-
need additional assistance to pay college costs after other forms of aid have been awarded,
-
are classified as nonresident students and need additional resources to "fill the gap" between need-based financial aid and college costs, or
-
Like other financial aid funds, loans are applied directly to your university student account to pay charges for tuition, fees, university-operated housing, and other university charges. If your loan funds exceed the charges on your student account, you will receive the excess funds (or "refund") to pay other educationally related expenses.
FEDERAL PLUS AND GRAD PLUS LOANS:
The Federal Direct PLUS Loan and Grad PLUS Loan programs have favorable loan terms and are backed by the federal government, which has a record of good service. Also, graduate students with Grad PLUS Loans have the option to consolidate the Grad PLUS Loan with Federal Direct Stafford Loans. Several types of repayment plans are offered.
The PLUS and Grad PLUS Programs offer a number of distinct advantages:
-
Stability of federal funding
-
May be consolidated with other federal loans
-
Fixed interest rate
-
Will not be sold
-
A 1.5% rebate of loan origination fee
-
A 0.25% interest rate reduction for electronic payment
-
Deferment option on Grad PLUS loans until after graduation
For more information about PLUS Loans, including how to apply, see the Federal Direct PLUS Loan and Federal Direct Grad PLUS Loan pages on this website.
PRIVATE LOANS:
Private student loans are offered through a variety of banks and other lenders. The best rates on private loans generally are offered to borrowers who have good credit and/or who have a co-signer with good credit. When shopping for a private loan, it is important to look for a loan you can live with over the long haul. You may be repaying it for years to come.
The chart below shows the range of terms typically offered by private lenders compared to the terms of the federal PLUS Loan and Grad PLUS Loan.
COMPARISON CHART (WITH QUESTIONS TO CONSIDER):
|
Loan |
Federal Direct PLUS Loan and Grad PLUS Loan
|
Private Educational Loan
|
Questions to Consider |
| Program/Sponsor |
U.S. Department of Education (federally funded)
PLUS Loan: Click here for application information
Grad PLUS Loan: Click here for application information |
Various banks and loan companies |
Will the company sell your loan to another company?
How long has the company been offering student loans? |
|
Eligible Borrower and Loan Amount |
PLUS: Parent borrows on behalf of undergraduate dependent student enrolled at least half-time in a degree or certificate program. Parent and student must be U.S. citizens or eligible non-citizens. Student must not be in default on prior educational loans and must be making satisfactory academic progress. Student does NOT have to complete the Free Application for Federal Student Aid (FAFSA), unless applying for other aid.
Grad PLUS: Graduate student who is a U.S. citizen or eligible non-citizen enrolled at least half-time in a degree or certificate program. Must be making satisfactory academic progress. Borrower must complete the Free Application for Federal Student Aid (FAFSA) to be eligible. Loan amount: Cost of attendance minus financial aid offered. No cumulative loan maximum. |
Student who is a U.S. citizen or permanent resident.
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 |
Fixed interest rate of 7.9% (See ww.ed.gov/offices/OSFAP/ DirectLoan/calc.html).
0.25% interest rate reduction with electronic auto-debit payments.
2.5% origination fee (4.0% fee with a 1.5% rebate if first 12 monthly payments are made on time). Grad PLUS: Interest begins accruing immediately; may be paid periodically or capitalized. |
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. Grad PLUS: Can opt to pay interest and principal while in school or interest and principal can be deferred while borrower is enrolled at least half-time (borrower must request an in-school deferment). |
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), do you understand how the interest will be calculated? |
Other
Information |
Basic credit check required: Borrower cannot be 90 days or more delinquent on the repayment of any 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. Consolidation: Both loans can be consolidated; Grad PLUS Loans can be consolidated with other federal loans. |
Co-signer may be required and/or may reduce interest rate and loan fees. Interest rates, fees, and loan limits depend on credit history of borrow/co-signer, loan options, and repayment schedule. |
What do student blogs say about the company? This is one of the best way to gauge a company's costumer service reputation. Customer service might not be important to you now, but it will be when you begin repaying the loan. |
Typical loan payments are shown in the example below:
ANNUAL PERCENTAGE RATE (APR) EXAMPLE:
|
Undergraduate Students |
Graduate Students |
|
Interest Rate |
APR |
Monthly Payment |
APR |
Monthly Payment |
|
Prime +0.00% |
7.98% |
$64.48 |
8.10% |
$80.82 |
|
Prime -0.50% |
7.51% |
$61.35 |
7.62% |
$77.13 |
Undergraduate students: This APR example is based on borrowing a $6,000 undergraduate loan with a 38-month deferral period followed by a 240-month repayment period. The Prime Rate is assumed to be constant at 8.25%.
Graduate students: This APR example is based on borrowing an $8,000 graduate loan with a 27-month deferral period followed by a 240-month repayment period. The Prime Rate is assumed to be constant at 8.25%.
Interest rates indexed to the Prime Rate as published in The Wall Street Journal will vary. As of January 30, 2008, the published Prime Rate was 6.00%. The APR will increase if the Prime Rate increases and would result in a higher monthly payments, an increase in the number of scheduled payments, or both.
COMPARING PRIVATE LOAN PROGRAMS:
More than 3,500 University of Michigan students borrowed from nearly 20 different lenders in 2007. Among them, 68% borrowed through the CitiAssist program and 10% held Signature loans through Sallie Mae. Students also use other private loan providers.*
For help comparing loan options, see the FinAid website loan analyzer at http://www.finaid.org/calculators/loandiscountanalyzer.phtml. Please note that a separate application is necessary for a private loan.
*Michigan's MI-Loan Program has been suspended temporarily. No new loan applications are being accepted by the program. Students should consider other borrowing options. When the MI-Loan Program is operational, 10% of U-M's private loan borrowers use the program.
|
A Word of Caution to Private Loan Borrowers
U-M students should avoid lenders that do not require U-M certification of their loan application and, in general, should be suspicious of unsolicited loan offers. The Michigan Student Financial Aid Association cautions students that "loan debt can accumulate quickly and result in a lifetime burden of high payments and credit denials for automobile purchases, credit cards, and home mortgages. Private loans also can reduce eligibility for more desirable federal, state and college aid programs. To avoid these problems, read and understand the terms and conditions of all loans." |
OTHER OPTIONS:
U-M INSTALLMENT PAYMENT PLAN:
Instead of taking out a loan, you may be able to pay your bill in installments. Contact the Student Financial Services Office (2226 Student Activities Building, tel.: 734-764-7447, toll free: 1-877-840-4738, e-mail: UM-SFO@umich.edu, web: www.sfo.umich.edu) for information on the university's interest-free monthly budget payment plan.
HOME EQUITY LOANS:
A home equity loan, available through most lending institutions, may be a useful option for those families considering additional borrowing. This type of loan allows a homeowner to "unlock" the incremental value of a family home. Compare the features of a home equity loan in your area with the educational loan programs described above.
RETIREMENT PLAN LOANS:
Taxpayers can make withdrawals from individual retirement accounts (IRAs) to pay the qualified higher education expenses at eligible educational institutions for themselves, their spouses, children, or grandchildren. The taxpayer will owe federal income tax on the amount withdrawn, but he or she will NOT be subject to the 10% early withdrawal tax.
There are also a number of IRA plans that allow employees to borrow against a portion of the equity in their accounts. While interest is charged on amounts borrowed, the interest payments you make will be credited back to your individual account. Contact your employee benefits representative to see if this may be an option for your family. Again, compare your retirement plan options with the educational loan programs described above.
HOW MUCH SHOULD I BORROW?
Current students and admitted students: To find out how much you may be eligible to borrow from a private loan program, select "Financial Planning Calculators" from within Wolverine Access (https://wolverineaccess.umich.edu).
|
Remember: Borrow only what you absolutely need: What you borrow today you will need to pay back later (with interest)! It is up to you to decide how much to borrow (up to the maximum allowed).
For more information on repaying your loans (including a loan repayment chart), contact the Office of Financial Aid. | |
 |
|
Federal School Code
002325 |
|
|
|
|
|
|
| |
