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As you and your family discuss how to pay for college, the amount that will be financed (i.e., paid over an extended period of time) is a very important issue. There are low-cost student loans that may be included as a part of your financial aid package. There are also non-need-based student and parent loans available to help meet some or all of your family’s expected contribution. And finally, St. Olaf offers a variety of payment plans through Tuition Management Systems that allow you to pay the balance due each year using a monthly or quarterly installment plan over the course of the year.
The Financial Aid Office will guide you to the lowest cost financing available for your family’s financial situation and fully present all of the available options. You may also receive solicitations at home asking you to utilize various education financing options—please feel free to use us as a resource as you sift through those alternatives. The ultimate decision about whether or not to borrow through these programs or through your own private resources (such as a home equity loan) is yours. However, we urge you to educate yourself about the options available through the college both for ease of borrowing and for comparable, sometimes lower, rates.
There is a summary of educational loan programs available listed below. As you begin to gather information, there are a few questions to ask about any financing mechanism as you evaluate its cost and usefulness for you:
Is the loan “subsidized” or “unsubsidized?”
For student loans, repayment of principal is generally deferred until after the student leave school or graduates. For parent loans, repayment of principal can often, but not always, be deferred while the student is enrolled. On a subsidized loan, no interest charged during the student’s enrollment in postsecondary education. The loan is “subsidized” because someone else (usually the federal government) is paying the interest on the loan for the borrower. On an unsubsidized loan, interest accrues at annual rate while the student is enrolled. Depending on the type of loan borrowed, payment of the accrued interest may or may not be required while the student is enrolled.
What are the fees and interest charged on the loan?
When you are offered an educational loan, either the college or the lender will explain the fees and interest associated with borrowing the loan. In some cases, a cap will be placed on the interest rate; for other programs, the rate can vary without limit. Generally, student loans are lower cost loans than parent loans, and overall, educational loans have terms that can be comparable to other private financing, such as home equity loans.
What are the tax benefits of the loan?
Until recently, interest on educational loans, was not tax deductible. Thanks to recent changes in federal tax law, however, interest paid on educational loans is now tax-deductible for some families. For information about income limits on deducting educational loan interest, consult your tax professional or the IRS guidelines.
Are there loan “forgiveness” options available?
Some federally guaranteed loans allow a borrower to have portions of the loan forgiven if the student goes on to work in certain professions, such as teaching, nursing, and law enforcement. Given that many of our graduates enter these fields, loan forgiveness can be a viable option for some St. Olaf students. More information can be found here: US Dept. of Education Loan Forgiveness, Cancellation and Discharge.
When does repayment begin, how long will I have to repay the loan, and under what circumstances can repayment on the loan be deferred?
Repayment on most student loans begins after the student leaves school. Repayment on parent loans begins shortly after the loan is disbursed, with a deferment option offered if the parent wishes to put off repayment until the student completes college. Federal loans offer flexible repayment options for new college graduates, along with deferments for graduate or professional school. Private and state loans may have more limited options available.