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For most students, one of the realities of attending college is a student loan - or several student loans in fact.
Module Transcript
Today the average student graduates from college with nearly $20,000 in student loan debt for an undergraduate degree. Unless you win the lottery on graduation day, this debt will mean hundreds of dollars per month in loan payments for up to 10 years or more. That said, student loans are an indispensable key to college for many students.
Many students with federal loans receive a combination of subsidized and unsubsidized loans. Subsidized loans are loans in which the government covers the interest on the loan while you're in school, potentially saving you thousands of dollars.
For unsubsidized loans, the student borrower is responsible for the interest as it accrues daily. Interest that accrues and is not paid during any school deferment is added to the loan amount, thus increasing the size of your loan. This process is called "capitalization". For example, if you borrow $1,000 and are charged an interest rate of 6.8% per year, you will owe not $1,000 at the end of your four years, the original $1,000 loan will now be a $1,272 loan. If possible, it's best to repay the interest as you go on unsubsidized loans.
Stafford loans are the most common federal student loan. Students who are dependents of their parents can borrow up to $23,000 for undergraduate education; independent students can borrow up to $46,000.
Perkins Loans are similar to Stafford Loans, except the financial need requirements are stricter and the interest rates and fees are lower. Students can borrow up to $4,000 per year with a maximum of $20,000 for their undergraduate degree.
Further, there are many alternative loan options available to you, such as the Parent Loan to Undergraduate Students (PLUS) program, depending on your parent's financial situation. These loans can be used to cover the difference between your aid package and the cost of attending school.
Selecting a Lender
Choosing a lender is a personal decision based on your individual needs. Many schools have a "preferred lender list" made of lenders they feel offer a good combination of price and service. When comparing lenders, here are some things to consider:
- Interest rate - What is the interest rate offered?
- Capitalization - Is your loan capitalized quarterly, annually or at the end of the loan period? As we learned a few minutes ago, the capitalization schedule can greatly affect your total debt. The more often your loan is capitalized, the more expensive it will be.
- Consequences of late payments - How will a missed payment or two effect your interest rate?
- Benefits of on time payment - Are there interest rate reductions for making on time payments or for completing your degree?
- Customer service - Does the lender have an "800" number? Do they have an easy to use website?
- Deferments - Does the lender offer to defer payments if you choose to attend graduate or professional school?
- Prepayments - Is there a penalty for paying off your loan early?
Choosing your lender is a serious decision with long-term consequences. We suggest you research all your options before making your selection. Overall, when comparing lenders, we recommend selecting the lender that offers good rates, fees and repayment options, along with a demonstrated commitment to education financing and customer service. PNC has been providing education financing for over 43 years.
Some students can borrow directly from the U.S. Department of Education using their direct loan program. Check with your school's financial aid office to see if they use the direct lending program.
The Master Promissory Note
After selecting your lender, you must sign a Master Promissory Note before you receive your first check. This is a legally binding contract in which you agree to repay the loan money you have borrowed.
The Master Promissory Note describes your rights and responsibilities as a student loan borrower, including the terms and conditions of the loan, the repayment schedule, the interest rate, and the deferment / cancellation policies. It is extremely important to read everything included on your Master Promissory Note. By signing it, you not only agree to repay the money you borrow, but you also agree to all terms and conditions included.
Once you sign your Master Promissory Note, a new one is not required for any new loans for up to 10 years, provided you stay with the same lender.
After signing your Master Promissory Note, you should direct all loan questions to the lender. They will provide a customer service phone number and website address.
Repaying Loans
After you graduate, leave school, or drop below half-time enrollment, you typically have a six-month grace period before you begin repayment. The grace period allows adequate time for you to find a job and start earning money. We suggest you try to pay off the loan quicker than scheduled to help save additional interest expense.
Remember, you are responsible for any money you borrow whether or not you complete your degree.
My Loan was Sold!
Student loans may be sold to
another lender. The loan holder
(the company who originally made
the loan to you) is required to
notify you by mail if your loan
is sold and give you the name
and address of the new loan holder.
Even if your loan is sold - which
is a common practice - your rights,
responsibilities, and repayment
obligation won't change.
To help ensure that your rights are protected, it's important to do a couple of things. First, notify your lender whenever you move - if your loan is sold and you do not get the notice, you will not know who to send your payment to.
Second, keep copies of all papers regarding your school loan. You'll have problems later if you can't find your promissory note, can't remember what type of loans you received, or don't know who you're supposed to repay or how you go about postponing repayment if you should have financial difficulties or choose to attend graduate school.
For more information on student loans, please save this section to your home page.
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