Many college students today hit a hurdle before they even start when it comes to finding the funds necessary for college because they have already managed to run up a poor credit history. Fortunately however there are aid and loan packages available today which look principally at need and ignore your credit history and so this is where you will need to start your search for funding.

One of the oldest sources of funding and one which is chiefly available on the basis of economic need is the Pell grant. As long as the student and his family are considered to be a low-income family a Pell grant is more or less automatic and is made on the basis of the submission of supporting documentation.

The student will be required to provide proof of the cost of his intended course (including tuition fees and other qualifying costs) and will also need to provide details of the family’s income from which an EFC (Expected Family Contribution) number will be calculated. On this basis a decision will be made and the grant made or refused.

As the name suggests, a Pell grant is a ‘gift’ and not a loan and it does not have to be repaid. Pell grants are currently for a maximum of $4,731 a year (depending on your assessed financial need) and, while this will not normally cover the full cost of attending college, it can go a long way towards helping. However, most students will need to seek loan funding in addition to a Pell grant and the best form of loan funding initially are Stafford loans.

There are two different types of Stafford loan and the first is a subsidized Stafford loan on which the government pays any interest charges while you are studying full-time and for up to six months after graduation. The second type of Stafford loan is an unsubsidized Stafford loan on which you will be responsible for making all interest payments.

Unsubsidized Stafford loans need to be considered very carefully because, although you will be responsible for making interest payments, you will not be required to do so while you are in full-time education and for up to six months after graduation. However, during this period interest will still be applied to any loan and will simply be added to the outstanding amount of the loan. This means that during a three or four year college course your loan debt can grow substantially and reach a very significant sum by the time you do start paying it off.

Naturally, most students would prefer to have an unsubsidized Stafford loan but loans are disbursed according to the funds available and on the basis of need so that only a minority of students will qualify for a subsidized loan. The good news however is that most students will qualify for an unsubsidized loan and, despite their drawbacks, these still represent one of the best forms of college loan funding available today.

There are of course other forms of grant and loan funding available (and scholarships) and you need to shop around to see just what is available and best suits your circumstances. However for students from low-income families Pell grants and Stafford loans are invariably the best routes to follow.

By: Donald Saunders

Stafford loans were established by Congress in 1965 as part of the FFELP (Federal Family Education Loan Program) to provide financial aid for students. They were originally intended to help student who were ‘in need’ but just what was meant by the term ‘in need’ was not entirely clear and the program was rapidly expanded. Today, Stafford loans account for more than 90% of the $50 billion dollars plus which is distributed each year to the various FFELP programs.

One way in which the definition of ‘in need’ was quickly broadened was to create two different forms of Stafford loan – subsidized and unsubsidized.

In the case of subsidized loans, the Federal Government pays the interest charges which would ordinarily accrue from the date on which the loan is originated until payments start. Usually, no payments are made while the student is attending school (as long as the program is a half-time program or greater) and for a further six month grace period after completion of the course. Students can however request that payments begin earlier if they wish to start repaying their loan before the usual date.

Because the government pays interest on these loans they are normally need-based in that aid officials will look at a student’s family income when deciding whether or not to grant a loan. In making their decision a number known as the EFC (Expected Family Contribution) is used and this is obtained from income information provided on the FAFSA (Free Application for Federal Student Aid) application form.

About two out of every three subsidized Stafford loans are given to students whose parents have an adjusted gross income of less than $50,000 per year. A further 25% are awarded to students whose families fall into the $50,000 to $100,000 per year range. However, the definition of ‘in need’ is still very flexible and about 10% of subsidized loans are given to students whose combined family income is in excess of $100,000.

If a student does not qualify for a subsidized loan then he or she will normally be eligible for an unsubsidized Stafford loan. In this case interest due on the loan accumulates from the day the loan money is disbursed until the day that the loan is paid off and interest charges can build rapidly. For example, even in we take the case of a modest $5,000 loan, at 6.8% the first year’s interest charge is approximately $430 and this is added to the $5,000 with further interest charges being applied to the higher figure in subsequent years.

Trying to work out interest payments can be a complicated business, especially if you have a series of different loans taken out over two or three years in college, because, while interest is quoted as an annual figure, it is calculated monthly and added to the loan principle as you go along with interest in subsequent months being charged on the increasing figure. A good approximation can be made however by using one of the many freely available online mortgage calculators.

From the example above it should also be noted that $5,000 is a very low figure as student loans go and that most students will borrow considerably more than this. Indeed, the average student probably borrows about $15,000 in a mixture of different government and private loans

By: Donald Saunders

Stafford loans were established by Congress in 1965 as part of the FFELP (Federal Family Education Loan Program) to provide financial aid for students. They were originally intended to help student who were ‘in need’ but just what was meant by the term ‘in need’ was not entirely clear and the program was rapidly expanded. Today, Stafford loans account for more than 90% of the $50 billion dollars plus which is distributed each year to the various FFELP programs.

One way in which the definition of ‘in need’ was quickly broadened was to create two different forms of Stafford loan – subsidized and unsubsidized.

In the case of subsidized loans, the Federal Government pays the interest charges which would ordinarily accrue from the date on which the loan is originated until payments start. Usually, no payments are made while the student is attending school (as long as the program is a half-time program or greater) and for a further six month grace period after completion of the course. Students can however request that payments begin earlier if they wish to start repaying their loan before the usual date.

Because the government pays interest on these loans they are normally need-based in that aid officials will look at a student’s family income when deciding whether or not to grant a loan. In making their decision a number known as the EFC (Expected Family Contribution) is used and this is obtained from income information provided on the FAFSA (Free Application for Federal Student Aid) application form.

About two out of every three subsidized Stafford loans are given to students whose parents have an adjusted gross income of less than $50,000 per year. A further 25% are awarded to students whose families fall into the $50,000 to $100,000 per year range. However, the definition of ‘in need’ is still very flexible and about 10% of subsidized loans are given to students whose combined family income is in excess of $100,000.

If a student does not qualify for a subsidized loan then he or she will normally be eligible for an unsubsidized Stafford loan. In this case interest due on the loan accumulates from the day the loan money is disbursed until the day that the loan is paid off and interest charges can build rapidly. For example, even in we take the case of a modest $5,000 loan, at 6.8% the first year’s interest charge is approximately $430 and this is added to the $5,000 with further interest charges being applied to the higher figure in subsequent years.

Trying to work out interest payments can be a complicated business, especially if you have a series of different loans taken out over two or three years in college, because, while interest is quoted as an annual figure, it is calculated monthly and added to the loan principle as you go along with interest in subsequent months being charged on the increasing figure. A good approximation can be made however by using one of the many freely available online mortgage calculators.

From the example above it should also be noted that $5,000 is a very low figure as student loans go and that most students will borrow considerably more than this. Indeed, the average student probably borrows about $15,000 in a mixture of different government and private loans.

By: Donald Saunders