<p>At my state school I have been offered grants for all my tuition costs, but we still need to cover fees and housing which comes out to around 12k. Of that, I need to take out loans for about 7.5k. My mom and I were just going through the process on the fafsa site, and I saw that interest rates will be 5.6% for the 08/09 year, and then there is the 3% loan processing fee as well. Is this correct? 8.6% interest per year? </p>
<p>This seems really high considering house loans are often under 5%. I'm wondering if there are better rates from banks or credit unions, or if this is actually the best option. BTW, my mom does have good credit history if that would help.</p>
<p>No - the 3% fee is 3% of the loan. For a $3000 loan, the origination fee would be $90 at 3%. That means you’d get $2910 but owe the full $3000. Not all lenders charge fees, by the way. You can shop around</p>
<p>You can only borrow $5500 in Stafford loans as a freshman, and only a maximum of $3500 of that $5500 can be subsidized (possibly less). This is the federal student loan program. If you were offered a Perkins loan by your school, this is another great federal student loan program, but Perkins funding is limited & you may not have the option for a Perkins - if you were offered one, it is in addition to the $5500 Stafford.</p>
<p>If you take out a regular loan, you will have to repay immediately. Student loans are deferred while you are in school, meaning no payments while in school. Subsidized loans are 5.6% and NO interest accumulates while you are in school - it’s like a free loan until repayment begins. Unsubsidized loans are 6.8% & interest accumulates immediately - but you can roll the interest into the loan & pay interest on the interest. These loans do not require credit checks or cosigners. If your mom wants to borrow a PLUS loan, another federal loan, she can … that has a higher interest rate, but some lenders will let her defer repayment like the unsubsidized Stafford. This is a parent loan & does require a credit check.</p>
<p>Stafford loans are a good deal for the student, especially subsidized Staffords:
the interest rate is reasonable;
no payments are required while you’re in school;
there’s a grace period to allow you to find a job;
there are loan consolidations, deferments, and various payment plans to help make payment structuring easier;
and no one else will loan a kid with no credit/collateral/cosignor money!</p>
<p>I expect my kids to take loans in their own names before I put my credit, home, or retirement in jeapordy for their education, but it’s up to your mother to assess her own financial situation and make that call. If you’re asking about PLUS loans vs. private/HELOC loans then the interest rate benefits may outweigh the risk in her view.</p>
<p>This is such an awesome summary of the relevant information! Thank you kelsmom & sk8rmom! </p>
<p>Son is in a similar position as oregon – has full tuition and a portion of room/board paid, but will need some additional $ (maybe $5k) for other expenses. </p>
<p>We’ll check out the loans & also encourage him to fill out more outside scholarship apps!</p>
<p>Is it possible to get extra money from the house mortgage loan, or something like that? I know my parents are paying under 5% on the house, so if I could borrow some of that money, it could be like a subsidized federal loan, except even more super rates. Would there be a way to legally force me to pay back the money so that my mom wouldn’t worry about it? I don’t think she would go for an undocumented loan from the house mortgage.</p>
<p>If there’s enough equity in the house (value of the house minus the mortgage balance she still owes), then she would probably be able to borrow against it to pay college costs. And no, since she owns the house, you wouldn’t be a party to the loan; it would be between her and the bank.</p>
<p>There are pro’s and con’s of every type of loan which your mom would need to weigh for her situation. The advantages of a home equity loan are: The rate might be quite a bit lower than an unsecured loan (a loan with nothing but a signature to guarantee payback). Also, it might reduce her income taxes.</p>
<p>The downsides of an equity loan are: Payback begins immediately; there’s no deferral till graduation + 6 months. Also, the loan is guaranteed by the house itself. If for some reason it’s not paid back, she could lose the house.</p>
<p>Still, it’s an option worth considering, and alot of people use it for paying college costs; we’re considering it ourselves.</p>
<p>A home equity loan will not necessarily have the same interest rate as the mortgage. It is, in fact, a second mortgage. Instead of paying one portgage payment, as LasMa says, she will pay two and pay back starts immediately. This is a good option for people who don’t want to liquidate assets becasue the market is down and they have a little extra cash at the end of the month. It isn’t a great option for everyone.</p>