Managing Student Loans

The majority of students that plan to pursue a college education need to supplement the high costs of achieving a degree with borrowing. Whilst the first thing to aim for is to obtain a scholarship or grant to reduce necessary borrowing costs, loans become a financial reality for most. Unless a student is an adult returning to education they are unlikely to have built up a credit history of their own though, and naturally lenders need something to evaluate the risk of the student they lend to.

The federal government however aims to encourage more people into education and offers assistance to students in the form of several loans which are not subject to any credit check at all. Those with no credit history, and even those who have a bad credit history, are both entitled to apply for a federal loan to assist with college costs. The exception is students who have previously defaulted on a federal student loan.

Loans are applied for by completion and submission of the FAFSA application. Many post secondary institutions require this before they will consider grant applications. The FAFSA covers student applications for federal Stafford loans, federal Perkins loans, and the Pell grant. Perkins and Pell are only awarded to those students who demonstrate exceptional financial need.

Federal Stafford loans are means based. The information provided is evaluated and a figure will be reached which shows the ‘expected family contribution’ if this is applicable. There are two federal Stafford loans: subsidized and unsubsidized, the former being granted to the students with the most financial need. Some students make use of both loans.

Recent changes mean that all federal Stafford loans are now dealt with by the direct lending program administered by the US Department of Education, so the student need only apply for the loans and no longer search round between different lenders to compare rates on them.

The federal subsidized loan is the cheapest way for students to finance college through loans. They have a low fixed interest rate and the government pays the interest on the loan until six months after the student graduates, thus releasing the pressure from the student to find monthly interest payments whilst studying.

The unsubsidized loan also has a low fixed rate but the student assumes the interest payments from the time of disbursement of the loan. However they can arrange to have the interest payments deferred until six months after graduation if they choose, but the interest will continue to accrue daily.

The federal Stafford loans and the federal Perkins loan are thus free from the necessity of a credit check. If further additional loans are required to cover any shortfall in college funding then the only option is private student loans which are subject to credit checks.