What do these types of loans have in common?
- Interest begins accruing at disbursement.
- The loans listed below all have a credit component - in other words, either the student or the cosigner (or both) must meet the lender's credit-worthiness requirements.
Click here for more detailed information about which questions to ask before you decide on a loan program.
|
Federal Direct Parent PLUS Loan |
College Access Loan (CAL) |
Private Education Loan |
Why it's important |
|
| Who is the borrower? |
Student's natural or adoptive parent, or a step-parent who appears on the FAFSA | Student (must be Texas resident) | Student | Whomever is listed as the borrower is primarily liable for the debt; however, in the case of a cosigned loan the cosigner is equally liable |
| Who is the lender? | US Dept of Education | State of Texas | Multiple lender options available - see TCU's recommendations here | You will have a long relationship with whatever lender you select. |
| Loan limit per year |
Student's estimated cost of attendance as determined by TCU less other financial aid the student is receiving | Because CAL funds are limited, TCU will certify up to $20,000 per student per year; CAL loan cannot “replace” Stafford loan eligibility (even if student declines Stafford loans) | Student's estimated cost of attendance as determined by TCU less other financial aid the student is receiving | Most families borrow from a combination of loan programs to meet their needs. |
| Cosigner | Parent borrower can add endorser if borrower credit not sufficient | Almost always required for undergrad students; using cosigner can result in lower up-front fee | Almost always required for undergrad students; definite benefit to add cosigner - will likely improve interest rate | One decision that must be made is whether the debt should be in the parent's or student's name. The PLUS offers parent responsibility for the debt, while the CAL or private student loan places the student as primary borrower (although the cosigner is liable also). |
| Can the cosigner ever be "released" from the loan? | No | No | Varies by lender; if available, student must make a certain number of payments on time and pass a credit check to release the cosigner | Cosigners might feel more agreeable to cosigning if there is an opportunity to be removed from the debt obligation after a certain time period. |
| Interest Rate | Fixed at 7.9% for life of the loan, unless consolidated | Fixed at 5.25% for the life of the loan | Both variable and fixed rate loans available; rates depend upon credit of student borrower and/or cosigner; variable rates generally range from 3.5% to 10%, and fixed rates from 7% to 14%. | While the stable nature of a fixed rate loan has advantages, borrowers and cosigners should carefully consider all options. It is possible that borrowers/ cosigners with good credit may be able to obtain a lower rate on a private loan than is available on the Federal and state fixed rate options. Should the borrower intend to repay the loan in a relatively short amount of time, during which it is less likely a variable interest rate will rise dramatically, selecting a lower rate on a private loan may be the best choice. |
| Interest Capitalization | Interest capitalized (calculated and added to principal) upon entering repayment and again after any period of deferment or forbearance | Interest is never capitalized | Varies by lender; most capitalize upon entering repayment and again after any period of forbearance | The more often interest is capitalized, the more expensive the loan. |
| Loan Fee (deducted from disbursements) | 4% for all borrowers | 5% if student applies alone 5% if student applies with cosigner but student does not meet credit requirements 3% if student and cosigner both meet credit requirements |
Varies, but most private loans have no upfront fees | State and Federal loans have fees, which are deducted from the loan disbursements, while most private loans do not. |
| Application Process & Timeline | Parent can apply online at http://www.studentloans.gov/; process can take as little as 5 business days (more information at our PLUS Loan page) | Apply online at http://www.hhloans.com/; loan process takes approximately 3-4 weeks (more information at our CAL Loan page) | Apply on line with the lender of your choice; See TCU's recommendations here; loan process takes approximately 3-4 weeks | Almost all education loan processes are now done online. It is critical that you keep track of when additional steps must be completed - watch your email! |
| Credit Requirements | No debt to income ratio or credit score is used; see our PLUS Loan page for more info | See our CAL Loan page for details | Varies based on lender, but most require a minimum of 3 years of positive credit history and at least 3 open credit accounts | With private loans, a borrower (or cosigner's) credit history helps to determine the interest rate. |
| Consolidation | Federal Direct Consolidation Loan through US Deptartment of Education - http://www.loanconsolidation.ed.gov/ (a parent's loans cannot be consolidated with his/ her child's student loans) |
CAL Loans cannot be consolidated with other types of loans | A few lenders offer private consolidation loans to assist borrowers with multiple private loans; these loans cannot be consolidated with Federal loans | Consolidation is primarily a helpful tool for students with multiple loans of the same type held by different lenders or servicers. |
| Loan Repayment Plans | Multiple repayment plans, including some based on income, are available. More information online. | Both 10 and 20 year repayment available, depending on loan balance; graduated and income-sensitive also available | Traditionally, private loans have repayment periods of 10-25 years, typically spread out in equal monthly payments | Private loans tend to have fewer repayment choices than Federal and state loans. |
| Postponement of Payments | Several deferments for school enrollment, unemployment, military service and economic hardship. More information online. | Most of the Federal deferments are available for CAL. A list of deferment forms is available on the state's website under "Forms." | Most private loans have minimal periods of postponement available for economic hardship; see prom note for details | No one expects to be unemployed or need to postpone payments, but these options can be crucial if you need them. |
| Loan Forgiveness/ Cancellation Availability | Loan is cancelled upon death or total and permanent disability of either student or parent borrower; some forgiveness options available for certain public interest careers | Loan is cancelled upon death or total and permanent disability of student borrower | Some lenders do forgive loans in the event of borrower's death or total and permanent disability; see prom note for details | If the unexpected occurs, it's very helpful for remaining loan balances to be forgiven. |
