Exploring student loans

529 college savings plans: savings vehicles, sponsored by states and colleges, which offer tax advantages to people using the vehicles to build funds for higher education.

Collateral: property or other assets that a borrower pledges to turn over to a lender in the event the borrower defaults on a loan. Some loans require the borrower to make such a pledge as a precondition for getting loan approval.

Perkins Loans: federal education loans awarded to eligible undergraduate and graduate students with exceptional financial need, with no credit check required.

PLUS Loans: federal education loans for either parents of students or for graduate or professional degree students. Although a PLUS Loan imposes no financial need requirements, the applicant may be required to pass a credit check.

Stafford Loans: federal education loans available to undergraduate and graduate students, with only the subsidized version requiring the student to demonstrate financial need.

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If someone in your household hopes to attend college in the not-too-distant future but you worry about having enough cash to cover all the costs, there are a number of options available to you. Knowing these options can help you figure out how to make higher education a more achievable goal.

Start by looking at "529" plans, sponsored by states and colleges. These are college savings vehicles with tax advantages, including federal and state tax-deferred growth, federal tax-free earnings if you withdraw money to pay for college, and, in some states, an annual state tax deduction for your contributions. A 529 plan offers an excellent way to save for college, whether you have nearly two decades to save for your newborn child's higher education or as little time as three to five years to fund your own return to school as a graduate student.

Beyond 529 plans and other options to save and invest for college, find out about opportunities for grants and scholarships. Since they don't have to be paid back, grants and scholarships offer the best kind of financial aid.

If, after taking advantage of savings and investment opportunities, grants and scholarships, you still need help with college costs, you may want to consider student loans. Many families rely on student loans to cover the considerable costs of a college education.

Below is a summary of the various types of student loans that you may want to consider. Regardless of which type of loan you choose to pursue, please pay attention to the deadline for any financial aid forms or loan applications you're required to complete and submit. Submitting a late form or application could hinder your chances of getting the aid you need.

Federal loans
The federal government sponsors student loan programs at comparatively low interest rates and with no collateral required from the borrower in order to get approved for the loan. For example, you could consider applying for a loan from the U.S. Department of Education through the federal Direct Loan Program. Loans under this program include Stafford Loans for undergraduate and graduate students and PLUS Loans for either parents or graduate or professional degree students. Also, under a separate federal program, Perkins Loans are awarded to undergraduate and graduate students with exceptional financial need.

To apply for a federal student loan, the borrower must complete and submit the federal government's financial aid form, also known as the FAFSA (Free Application for Federal Student Aid). More information about the Direct Loan Program can be found at www.direct.ed.gov. To learn more about Perkins Loans, go to www2.ed.gov/programs/fpl.

Private loans
Private student loans are made by financial institutions directly to students. The federal government is not involved in making these loans and does not guarantee them. However, to apply for a private loan, you may need to complete the federal FAFSA form in addition to the lender's own application, depending on the lender's rules.

As with any other type of private loan, like an auto or home loan, the borrower's ability to obtain a private student loan will be based on his or her creditworthiness. A private student loan may or may not require the borrower to put up collateral in order to get approved for the loan.

To learn more about private student loans, go to www.finaid.org/loans/privatestudentloans.phtml.

State loans
Many states offer a variety of student loan programs. To apply, you must complete an application provided by the state and you may also be required to complete the federal government's FAFSA form.

Opportunities and submission requirements will vary by state. To explore financial aid opportunities (such as loans) offered by your state's government, go to the www.students.gov and, on the home page, click "State financial aid" under "Pay for your education."

College loans
If you have not done so already, before applying to your preferred schools, be sure to inquire about any loan programs, including scholarship loan programs, they may offer. Most schools with such a program require applicants to complete the PROFILE form created by the College Scholarship Service. You may also need to complete the federal FAFSA form.

Choosing a path
There are many options when it comes to covering the cost of a college education for your child, spouse, partner or even yourself. Take some time to research the various loans and programs that are available so you can make an informed decision on how to best go forward based on your financial situation, where you live, your preferred college and other personal factors.

Explore further
Visit tiaa-cref.org for broader Financial Education, including a variety of resources to help you improve your financial well-being.


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