<p>OK, I know I have been remiss on this. But suddenly I'm getting emails about the Stafford Loan paperwork being due. Son is only eligble for the lowest one ($2600 unsub). Now, why would we bother with this vs. using home equity if we get into difficulty down the road? Can anybody briefly tell me what this loan is and why it is advantageous to take it out? THANKS.</p>
<p>Stafford loans are in your son's name. Home equity loans are in the parents' names. Our kiddos are taking out the Stafford loans. It is part of their contribution to their college educations. If we are able to, we will help them pay these loans back after they graduate. Also...Stafford loan interest rates are typically lower than home equity rates.</p>
<p>The Stafford loan is interest-free while the kid is in school, and payments do not begin until the kid graduates. So if you borrow $2650 on your home equity, you will have to make payments now, at current rates - if you have a HELOC, they tend to be adjustable rates, so you bear the immediate problem of rising rates as well. </p>
<p>When your kid graduates, if he takes the max Stafford loan each year, he will be $17,000+ in debt. As thumper1 noted, it will be his debt, not yours. If you had been borrowing the same amount on home equity, you will have paid it down somewhat - however, again with a HELOC, the loan is often amortized in a way where if you pay the minimum amount due, you are not paying down the loan at rate that will have it paid off within the term of the loan. (Kind of like credit cards - it keeps your payments low, but most of the payment is interest). </p>
<p>The down side of the Stafford is that there is also a loan origination fee tacked on each year. If you have an exisiting HELOC, you wouldn't have to worry about that -- though a new loan would of course come with all sorts of fees (appraisal, title fees, notary fees, etc.).</p>
<p>a minor correction - the unsubsidized Stafford loan accrues interest while the student is in school. You will get statements showing you the interest that's being tacked on, and if you like, you can pay the interest - in effect, you are then subsidizing the loan for your child (it's never been more than $50 a couple times a year, in the second year of the loan). I think the loan origination fee varies by bank - I don't remember a loan origination fee; if there was one it was a low amount. Students qualify for subsidized loans on the basis of family income, but I don't know what the cutoffs are. It probably takes into account the entire finaid package. </p>
<p>We felt if made sense to take the Stafford unsubsidized for reasons others stated - it's the responsibility of the student; interest rate beats anything we can get. If we can help him to pay it back we will (but we'll have another in college then, so help might have to wait).</p>
<p>Thanks for the correction- I failed to note that weenie mentioned the loan was unsubsidized -- my comments were about subsidized loans. For the subsidized loans, I believe that they all have the same minimum origination fee set by Sallie Mae - private lenders might vary somewhat. It wasn't a huge amount, but it was something to consider in the equation.</p>
<p>Looking at the last statement on my son's paperwork - the interest rate on the Stafford was 2.77%, but that was before the July 1st increase.</p>
<p>Thanks everybody! I think I'll just send in the form to cancel it.</p>
<p>Lax Mom - what did it increase to on July 1st?</p>
<p>our local credit union does not charge origination or other fees for their student loans - so it is worth checking this out if you are a credit union member.</p>
<p>More Stafford loan questions. First child we had no choice with lender. Now we're supposed to pick from the "preferred lender" list. Choices include Access Group, Citibank, and Bank of America. Each lists themselves as zero fee loan with origination fees deducted from the loan? Incentives include 2% interest rate reduction after 48 on time payments (4 years), OR 1% reduction of principal balance after 1 year on time payments, another 1% reduction in principal after 2 years, and 1% reduction after 3 years. All give .25% interest rate breal if auto debit. Does anyone have any experience with any of these lenders/programs? Anything I should consider? Thanks for any input.</p>
<p>Any takers on comparing Stafford loans?</p>
<p>Bluejay,</p>
<p>you really need to create a financial model (spreadsheet) to compare the various options from different lenders.</p>
<p>As you poin out, not all stafford loans are the same, and the same applies to plus loans. Various lenders have various "features" that may or may not add value. I don't think there are any catches in these - they just show that this is a profitable business.</p>
<p>Bluejay - I think with my son we went with American Express for the Stafford Loan the first year, and by the end of the year we had a notice that Amex was no longer going to handle student loans, and the loan was to be transferred to another lender -- same with my PLUS loan. The net impact is that we both pay directly to Sallie Mae - if there is another lender in the picture, we don't have a clue which it is. Same story with my mortgage - for awhile it seemed like every 2 years there was a new lender in the picture.</p>
<p>Any lender is bound by the terms of the agreement you sign at the outset, so my recommendation is just that you go with whoever seems to offer the best deal. If they are the same, then it doesn't matter - if you already bank with any of the lenders, then you will probably find it more convenient to go with them, merely because you might be able to set up features like online banking that allow you to see all your accounts from one interface. (And it's pretty hard for Bank of America, for example, to claim it never received a payment that came out of another Bank of America account .... I have had mysteriously "lost" payments to lenders in the past, though never associated with a student loan - more a 2nd mortgage kind of issue).</p>
<p>We use unsub staffords and PLUS to manage cash flow and investment alternatives. Its hard to liquidate assets twice a year to get the ~$18,000 pr semester. Alternatively, it is equally hard to get $18,000 in a HELOC, line-of-credit, or refi on a home. </p>
<p>the Stafford and PLUS are just tools in our money management.</p>
<p>I would agree however, that HELOC's may be a better option at this time.</p>
<p>This year we will liquidate more assets vs taking on loans primarily because the staffords/PLUS rates are much higher than the last 3 years.</p>
<p>BlueJay: We use one of the lenders that you mentioned. If you are in state or school that has a loan managment service, you will find that you will be dealing with that service after the loan is disbursement. In PA, that service is AES (American Education Service) which really is a branch of the PA state government.</p>