By Joe Romanowski

As current high school juniors begin to make their college plans, the souring economy and the credit crisis could dramatically affect their family’s ability to borrow for college.
While federal loans remain available, loan discounts have been reduced significantly. And private student loans have new eligibility restrictions, requiring a higher credit score or a co-signer. Today, it’s more important than ever for families to begin their borrowing plans for college now! The following is a refresher course for high school juniors on how the system works.

Federal Loans and Private Loans
Federal student loans are guaranteed by the government and feature lower-fixed interest rates. They can be used to cover the major costs of education, such as tuition, room and board, and textbooks. It’s recommended that you use federal loans first as they offer the lowest cost option and a greater selection of repayment choices.
Private student loans are education loans offered by banks and other private lenders. They allow you to borrow up to the full cost of your education when federal loans do not cover the balance. Private student loans are credit based and can be used to cover additional expenses, such as travel, lab costs and computers.

Certified Private Student Loans & Non-Certified Private Student Loans
A certified private loan is a loan that your school verifies your eligibility for the requested loan amount. This ensures that you borrow only what you need.
Non-certified loans typically have higher borrowing limits and higher interest rates than the certified loans. In addition, while the interest on certified private loans is generally tax-deductible, interest paid on non-certified private loans is not tax-deductible.

FEDERAL STAFFORD LOANS
The main federal loan for students is called the Stafford loan and has several variations:
Federal Family Education Loan Program (FFELP) loans: These loans are provided by private lenders, such as banks, credit unions and savings and loan associations. They are also guaranteed against default by the federal government.
Federal Direct Student Loan Program (FDSLP) loans: These loans are provided by the U.S. government directly to students and their parents and are administered through Direct Lending Schools.
Subsidized Stafford Loans: The government pays the interest on subsidized Stafford loans while you’re in school.
Unsubsidized Stafford Loans: You pay all the interest on unsubsidized Stafford loans, although you can have the payments deferred until after graduation

Basic Eligibility:
• You must be a U.S. citizen, a foreign-national, or eligible non-citizen and enrolled as a full- or half-time undergraduate student.

Interest Rate:
• 6 percent for a subsidized Federal Stafford loan
• 6.80 percent for an unsubsidized Federal Stafford loan

Loan Benefits:
• Some loans have a 0.25-percent interest rate reduction when you use automatic debit payments and receive electronic statements.

Fees:
• 1 percent origination fee
• 1 percent federal default fee

Borrowing Limits:
Subsidized Stafford
• Freshman - $3,500
• Sophomore - $4,500
• Junior - $5,500
• Senior - $5,500
• Total Maximum Loan - $23,000
Unsubsidized Stafford
• Freshman - $5,500
• Sophomore - $6,500
• Junior - $7,500
• Senior - $7,500
• Total Maximum Loan - $31,000

Stafford for Independent Students, or Students Whose Parents Have Been Denied the Parent Plus Loan
• Freshman - $9,500
• Sophomore - $10,500
• Junior - $12,500
• Senior - $12,500
• Total Maximum Loan - $57,500

PARENT PLUS LOANS
The federal Parent Loan for Undergraduate Students (PLUS) lets parents borrow money up to the full cost of attendance to cover any costs not already covered by the student’s financial aid package. Parent PLUS loans are the financial responsibility of the parents, not the student. If the student agrees to make payments on the PLUS loan, but fails to make timely payments, the parents will be held responsible for the loan.
If a dependent student’s parents are denied a PLUS loan, or the college financial aid administrator determines that the parents are likely to be denied a PLUS loan, the student becomes eligible for increased unsubsidized Stafford Loan limits. In this case, only one parent needs to apply for and be denied a PLUS loan. However, if one parent is denied a PLUS loan and the other is approved for a PLUS loan, the student is not eligible for increased Stafford Loan limits.

Basic Eligibility:
You must be a parent of a full- or half-time dependent undergraduate student and a U.S. citizen, a foreign-national or eligible non-citizen, with a satisfactory credit history

Interest Rate:
• 8.5 percent

Loan Benefits:
• Some loans have a 0.25-percent interest rate reduction when you use automatic debit payments and receive electronic statements.

Fees:
• 3-percent origination fee
• 1-percent federal default fee

Borrowing Limits:
• You can borrow up to the total cost of education less any other financial aid awarded.

Are Federal Student Loans Subject to Credit Scores?
The Stafford and PLUS loans do not depend on your credit score. Stafford loans are available without regard to your credit history, but the PLUS loan does require that the borrower not have an adverse credit history. An adverse credit history is defined as being more than 90 days late on any debt.

PRIVATE STUDENT LOANS
Private student loans (also called “alternative loans”) are used expressly for paying for college costs when other loans are unavailable. They are taken out from banks, lending companies or other private entities, in the student’s name. The loan payments can be deferred while the student is enrolled in school.
You may apply for a private loan on your own, but today, most require a co-signer. Since private loans are credit-based, applying with a creditworthy co-signer may increase the likelihood of your approval and may help you get a lower interest rate.

Basic Eligibility:
• You must be at least 18 years of age, 19 in Alabama and Nebraska, 21 in Mississippi and Puerto Rico. You must also be enrolled at least part-time as an undergraduate student in an accredited college or university in the United States.

Interest Rate:
• Between 6 percent and 12 percent

Loan Benefits:
• Some loans have a 0.25-percent interest rate reduction when you use automatic debit payments and receive electronic statements. Some also offer a 0.50 percent interest rate reduction after 48 on-time, consecutive monthly payments.

Fees:
• 0 percent to 5 percent

Borrowing Limits:
• You can borrow up to the total cost of education, less any other financial aid awarded. A $1,000 minimum loan amount may apply.

Private Student Loan Co-signer Requirements
A creditworthy co-signer is a U.S. citizen or permanent resident who is at least 18 years of age, 19 in Alabama and Nebraska, 21 in Mississippi and Puerto Rico. He or she must have a U.S. mailing address, valid social security number, and satisfactory credit history that includes at least 12 months of borrowing, charging and repaying. Co-signers may not have prior bankruptcies, liens, judgments, charge-offs, excessive 30-, 60- or 90-day delinquencies on any loans or revolving charge accounts. Co-signers, depending on credit, may also need verifiable income of at least $1,500 per month ($18,000 per year) and a debt-to-income ratio of less than 45 percent.

Are Private Student Loans Subject To Credit Scores?
Education lenders generally use the FICO score in combination with other factors to determine eligibility for private student loans. In most cases you will not be able to obtain a private student loan if you have a FICO score below about 630-650. The chart above demonstrates the average interest rate charged on private student loans

These are difficult economic times we face and those families who do not plan their education borrowing in advance could cost themselves thousands of dollars.

Joe Romanowski is the only certified college planning specialist in the Savannah, Coastal Empire and Low Country areas. He is the regional program manager for the American College Planning Foundation. He can be reached at College Funding Solutions, 41 Park of Commerce Way, Unit 104, Savannah, 912-232-7979 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .