December 23, 2006
Students should lock in college loans early
By Paul M. Krawzak
Copley News Service
WASHINGTON Apply early.
That’s the key piece of advice experts have for high school
seniors or college students who may need financial aid or a
student loan next year.
Congressional Democratic leaders have identified reducing
student loan interest rates — currently set at 6.8 percent or
more — as among their top priorities for the next session of
Congress. And there’s a good chance they will succeed, some
Capitol Hill observers believe.
But students should not wait for a lower interest rate to be
signed into law before applying for financial aid or a loan,
according to student aid directors and industry insiders.
That’s because the interest rates that students pay on loans is
based on when they receive the money, not when they apply for
If loan rates are reduced before the next full academic term,
which begins around September, students who receive the loan
proceeds at that time will pay the lower interest rate.
In short, there is no downside to applying early. But there are
drawbacks to applying late.
The next several weeks will mark the year’s heaviest traffic in
student financial aid applications.
Jan. 1 is the earliest that students can submit the Free
Application for Federal Student Aid, or FAFSA, a form used by
most two- and four-year colleges and universities for awarding
federal student aid and most state and college aid.
Financial aid administrators advise students to submit the forms
as soon as possible after Jan. 1 to meet varying college and
university deadlines that fall early in the year.
“We encourage students to apply early,” said Michele Wade,
associate director of financial aid at Ohio State University.
The earlier students apply, the less likely they are to lose out
on sources of aid with early application deadlines, she said.
Both the federal government and institutions of higher learning
use the FAFSA to determine how much aid, including subsidized
student loans, a student may qualify for, based on financial
need and the cost of tuition and other expenses.
Students who submit the FAFSA early in the year typically
receive information around April on their eligibility for
financial aid from colleges to which they have applied.
The most common type of student loan is the Stafford loan, which
has a fixed 6.8 percent interest rate. It is available in a
subsidized form for students who demonstrate financial need and
an unsubsidized form for those who do not.
The federal government is responsible for the interest on
subsidized Stafford loans until the recipient begins to pay off
the loan, typically within six months after graduating or
withdrawing from a required course load.
Students who have unsubsidized loans are responsible for paying
all the interest.
Stafford loans also are divided into direct student loans
provided by the government, and loans available from private
lenders through the Federal Family Education Loan program, or
Another common type of loan is the PLUS, which is available to
parents of dependent students and, as of July 1, 2006, graduate
and professional students. PLUS loans are not based on financial
PLUS direct student loans have a 7.9 percent interest rate. PLUS
loans available from private lenders through the FFEL program
have an 8.5 percent interest rate.
Other federal loans and private loans backed by the government
are also available to students.
OTHER FINANCIAL AID AVAILABLE
Experts advise students to exhaust other forms of financial aid,
such as scholarships, grants and part-time work, before seeking
a loan. They recommend comparing loans carefully, since some
carry incentives such as lower interest rates or waiving of
origination fees for students who pay on time.
“Make sure that you borrow conservatively,” said Amy Baker,
director of financial aid at Stark State College of Technology
in Jackson Township. “Do a budget.”
She said a “lot of students just borrow the maximum because they
can.” She advises against that.
Wade at Ohio State urges students who need to take out a loan to
seek a Stafford first, since it has the lowest interest rate.
The next option to consider is a PLUS loan, she said. But in
some cases, she added, other alternatives, such as home equity
loans, could have lower borrowing fees or tax advantages.
When students compare loans offered by private lenders, they
should recognize that advertised rates apply to the most
credit-worthy borrowers — and may not apply to them.