- What are three different types of loans available?
- Stafford loans
- Plus loan
- Subsidized loan
- Stafford-
- The terms are;
-you cannot have any outstanding debts to the federal government
-Submit the FASFA
-Have financial need which is determined by the school
-Be enrolled for at least half time
-You have access to the loan
-You do not need a cosigner
-To qualify for the loan, depends on the amount of your income
- Start making payments the 7th month after you graduate. Interest will not occur
while in school
-Undergraduate students may borrow a combined $5,500 to $12,500 per year in subsidized and unsubsidized Federal Stafford loans
-The interest rate on a federal consolidation loan is a fixed rate equal to the weighted average of the interest rates on the federal education loans that are being consolidated, rounded up to the nearest one-eighth of one percent.
For example, suppose a borrower has a $7,500 loan at 3.4% and a $10,000 loan at 3.86%. The interest rate on the federal consolidation loan would be
$7,500 x 3.4% + $10,000 x 3.86%$7,500 + $10,000=3.66%
This would then be rounded up to the nearest one-eighth of a point, or 3.75%.
- Interest Rate: 3.86% for undergraduates
- Interest Rate: 5.41% for graduates
2. Plus loan:
- The terms are;
-Meet the general requirements for financial aid
-The U.S Department of Education is the lender
-The maximum loan amount is the student's cost of attendance minus any other financial aid received
-If signed under the parent, the parent is the responsible for the loan. they cannot transfer it over to their child
-You do not need a cosigner
-To qualify for the loan, depends on the amount of your income
-Must begin within 60 days after the final loan disbursement for the period of enrollment after the loan was borrowed. You may deffer payments 6 months after you graduate. Interest will occur during the deferment period.
-interest rate depends on the borrower's (and/or co-borrower's) credit score. The PLUS loan has a fixed interest rate of 6.41% that does not depend on your credit score.
- Interest Rate: For Direct Plus loans first distributed on or after July 1, 2013, and before July 1, 2014, the interest rate is 6.41%
3. Subsidized loan:
- The terms are;
- An undergraduates dependence status is determined by the FASFA application
-Independent students may borrow up to $4,000 (freshmen, sophomores) or $5,000 (juniors, seniors)
-If the borrower is not eligible for the maximum subsidized loan, they are offered the differnce as unsubsidized loans, not to -exceed the cost of attendance minus other financial aid
-Aggregate loan limits are the lifetime maximum loan amounts a borrower is eligible for in their academic career.
-You have access to the loan. You do not need a cosigner but it will help to secure a private loan
-To qualify for the loan, depends on the amount of your income
-You usually do not have to start repaying your loans right away. This “waiting period” after graduation and before repayment begins is known as a “grace period.”
- Interest will begin after the first disbursement
-The federal government pays the interest during in-school, grace and deferment periods.
- How Much Can I Borrow as an Undergraduate? Dependent Students (Except students whose parents cannot borrow a PLUS Loan)
-Dependent undergraduate students who were not denied a Plus loan may borrow an aggregate amount of $31,000, of which $23,000 may be used for the subsidized loan. Independent undergraduate students (and dependent students whose parents were denied a PLUS loan) may borrow an aggregate amount of $57,500, of which $23,000 may be from the subsidized loan.
Graduate and professional students may borrow an aggregate amount of $138,500, of which $65,500 may be from the Subsidized loan. (Beginning in 2012, Subsidized Loans are no longer available for Graduate students).
-The interest rates on undergraduate Direct Subsidized Loans with an earlier first disbursement date varies:
3.4% for loans first disbursed between 7/1/11 - 6/30/13
4.5% for loans first disbursed between 7/1/10 - 6/30/11
5.6% for loans first disbursed between 7/1/09 - 6/30/10
Interest Rate: 4.66% for undergraduates
6.21% for graduates
How to find the Daily interest rates:
Interest rate x Current principal balance ÷ Number of days in the year = Daily interest
For example, Sara Student has a $10,000 current principal balance and 6% interest rate this year. Using the formula:
0.06 x $10,000 ÷ 365 = 1.6438356… (Round to $1.64)
If this were a leap year:
0.06 x $10,000 ÷ 366 = 1.639344… (Round to $1.64)
- How to find the the Compound interest:
A=P(1+r)^t
For example, determine the amount that $4000 investment over three years at an annual interest rate of 6.4% is worth monthly
Monthly compounding means that interest is compounded ever 1/12 of a year or 12 times a year. therefore,
the interest rate per period is r=0.064/12, and
the number of periods in 3 years is t=12(3)
A=4000(1+0.064/12)^(12*3)
=$4844.21
- Compound Interest:
Stafford loans:
quarterly:
interest rate per period is r= 0 .0541/12
The number of periods is t=4
A=4000(1+0.0541/4)^4
=$4189.68
Plus loan:
Monthly
interest rate per period is r=0.0641/12
the number of periods in 3 years is t=12*3
A=4000(1+0.0641/12)^(12*3)
=$4845.66
Subsidized loan:
Monthly
Interest rate per period is r=0.0466/12
The number of periods in 3 years is t=12(3)
A=4000(1+0.0466/12)^(12*3)
=$4598.93
-What is the interest rate and what does it depend on (income, credit, financial
need, set interest rates, etc.)