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MS - Career & Human Resource Development '94
Dundee NY

Student Loans - Easy, right?

Corinne Franklin on Thursday, 02 April 2009. Posted in Advising & Support

I realized after meeting with many, many families that the concept of student loans is a bit confusing. Well actually, unless you are a Financial Aid Administrator, understanding student loans can be very difficult. So, I thought it would be helpful to clarify a few things about student loans…First, there are two types of student loans: Federal and non-Federal (also known as private or alternative student loans).


Federal student loans are made available to students by the federal government. Schools have the option of receiving federal loans directly from the federal government (Direct Loans), or receiving federal loans from a lender (chosen by the borrower). In this case, the lenders are guaranteed the funds by the federal government (FFEL Loans). In essence, FFEL and Direct are identical loan programs with a different delivery method. RIT is a Direct Lending school; therefore, any federal student loan included in a financial aid award offer is processed by RIT. Borrowers do not have to find a lender for these loans.

These federal loans are made available to students without a co-signer or without a credit history. And, the interest rate is fixed at either 5.6% for subsidized loans (interest free while in college) or 6.8% for unsubsidized loans (interest accrues while in college). The federal student loans are by far more attractive than the non-federal loans. However, the government puts caps on the annual amount a student can borrow from the federal loan program. For example, a first year dependent student can borrow a maximum of $5,500 (no more than $3,500 subsidized) from the federal loan program. So, this is when the non-federal loans are considered.


Non-federal loans are offered by lenders to students, generally with a credit-worthy co-signer. The maximum amount that can be borrowed is normally the difference between the cost of attending college and the total financial aid awarded. Unlike the federal loans, these loans typically have a variable interest rate which is tied to either the prime or the LIBOR. In most cases, repayment can be deferred until after the student graduates. However, the interest will never be subsidized.


OK, are you still with me here?


Another twist to the student loan program is the Federal Parent Loan for Undergraduate Students (PLUS). Just like the federal student loan, there are two delivery options for the PLUS: Direct and FFEL. If a school is direct lending, all federal loans are processed by the school. There is not the option of getting the federal loan delivered by a lender. This also works in reverse for FFEL schools. As the name implies, this is a loan option for a parent of a dependent student. AND this option is recommended over the non-federal loans to meet any remaining educational expenses after financial aid has been applied. The PLUS Loan has a fixed 7.9% interest rate and repayment can be delayed until 6 months after the student graduates. There is a minimal required credit check for approval. However, if the loan is credit-denied the student has an option of an additional unsubsidized loan.


So, in summary there are primarily 3 loan options to meet educational expenses:


  1. Federal Student Loans (FFEL or Direct)
  2. Non-Federal Student Loans (private or alternative loans offered through lenders)
  3. Federal PLUS



Comments (8)

  • Walter Melon

    Walter Melon

    06 April 2009 at 13:44 |
    This was a great topic for your blog!:D
  • Corinne Franklin

    Corinne Franklin

    07 April 2009 at 07:54 |
    Mr. Melon,

    I’m glad you enjoyed my blog. Just keep in mind that student loans have a repayment obligation. You can find some valuable information regarding Financial Literacy on our website at By the way I think you’ll enjoy my next blog! I’m going to start featuring members of the Financial Aid and Scholarship staff, complete with photos!
  • Scott


    20 July 2009 at 18:39 |
    For those of you that do not qualify for a Pell Grant, I heard that Wells Fargo had a private or Federal program that can get you a low interest loan. Check out the url:
  • David Galan

    David Galan

    15 October 2009 at 13:37 |
    One has to always realize that when getting a loan what they are getting into.

    Student loans are a good for many students but they can be a curse for others. The world of student loans is unclear waters for the average person. Careful considerations must be given for the type of student loan, term, interest rates, and the borrower too!

    This is a good article that gives a good overview of the nuances of loans available.

    David Galan
  • Corinne Franklin

    Corinne Franklin

    15 October 2009 at 14:21 |

    Thank you for your sound comment. Many students coming out of high school have not had a background in financial literacy. And, in recent years there have been a tremendous amount of direct marketing of private educational loans. It can be overwhelming for a young adult willing to do anything to stay in college. I admire the first year student who wants to understand the terms of their student loans and who thinks about the monthly payments when they graduate. If I feel that a family is borrowing excessively for educational expenses, I’ll show them the repayment plan calculator at and let them see what their monthly payments would be.
  • David Galan

    David Galan

    16 December 2009 at 14:47 |
    Although I was fortunate enough to have most all of
    my college expenses paid for with scholarships and grants,
    I have seen so many students rack up 10's of thousands
    of dollars of loans; only to end up with a diploma
    in hand and a boat load of debt. If it wasn't for the
    low interest rates, the 'pay later' and low payment
    options, it would be more of a disaster that it is.

    Financial literacy is important, but financial
    responsibility and integrity is paramount.
    Without the latter, the first can be of no value.

    It is always refreshing to see students with
    honor. The ones that have a high view of integrity.
    The ones that press forward amidst the obstacles,
    trials and challenges. Those are the ones who pay
    their debts, and feel some sort of shame if left unpaid.
    We need more of them. A lot more.

    From were do we get these sometimes scarce, ideal souls?
    From a family where their father first and their mother
    next who nurture them with with same.

    David Galan
  • Addy Murray

    Addy Murray

    16 May 2011 at 14:24 |
    Good information about the types of loans. Loans are a necessary evil for a lot of kids, but they really need to make sure they get a degree in something where they can get the kind of job that allows them to pay back the loan.

    Addy Murray
  • Reyanmiller


    17 November 2014 at 09:42 |
    Most of the students problems solved out through your post, thanks for sharing the post. I think today lots of people want easy home loans facilities please share some information about it also.

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