Page 193 - digitalliteracy

9.1 Responsible Borrowing

• The Federal Perkins Loan

Program provides low-
interest loans available for
students with extraordinary
need through some 1,700
participating postsecondary
institutions.
• If you do not qualify for a
Perkins loan, you can apply
for a Direct Subsidized Loan
through the Federal Direct
Loan Program, for which you
must meet less-stringent
Creatas/Creatas/Thinkstock
income guidelines.
There are several options for student loans, each
with different interest rates and repayment options.
With both the Perkins and the Direct
Research all your options to determine which will
Subsidized Loan, you do not accrue
be best for you.
any interest on your loan as long as
you are a full-time student. There is a
grace period (usually between 6 and 9 months) upon graduation before loan repayment is
contractually required to begin. These are deferred-interest loans, which means the loans
do not begin to accumulate interest until after you graduate and after the grace period has
expired.

With Direct Unsubsidized Loans (also through the Federal Direct Loan Program), you do not
have to meet any income guidelines, but interest on these loans accrues the entire period in
which you are enrolled, as well as during the grace period. The 2010 Student Aid and Fis-
cal Responsibility Act eliminated direct loans through guaranty agencies, so all such loans
are now made directly through Federal Student Aid (https://studentaid.ed.gov), which is an
office of the U.S. Department of Education. Direct unsubsidized student loans, as well as many
private loans, accumulate interest while you are in school. Therefore, when you graduate you
not only owe the amount that you borrowed, but any interest that accumulated while you
were a student.

Let’s say you took out an unsubsidized student loan in the amount of $10,000 at a 5% inter-
est rate at the beginning of your first year, and for simplicity, that is all you borrowed. Look at
Table 9.2 to see what you owe upon completion of your degree.
As you are aware, this valuable investment in yourself comes with a price tag. Few people are
able to pay for their education outright and therefore must take out student loans. It is impor- Table 9.2: Loan with accrued interest
tant to understand the types of loans that are available because each one will have a different
Year Amount (interest rate) Total
impact on your financial future. As you now know, interest plays a major role in how much
you repay in the long term.
End of your first year $10,000 (1.05) $10,500
End of your second year $10,500 (1.05) $11,025
Types of Student Loans End of your third year $11,025 (1.05) $11,576

If possible, you want to obtain a federal loan (as opposed to a private loan) primarily because End of your fourth year $11,576 (1.05) $12,155
it costs less and has better repayment options. Federal student loans are available from the
Federal Perkins Loan Program and the Federal Direct Loan Program:

177
© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

sol82612_09_m09_171-194.indd 177 6/29/16 5:19 PM