Alabama College Student Loans

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Interestingly, a public agency called the Kentucky Higher Education Assistance Authority (KHEAA), which was created by the state of Kentucky to provide information about college to its students, now performs that service for the state of Alabama also. Many states’ education departments have similar agencies, but KHEAA was structured as a public corporation and given the power to do business as an educational consultant in other states.

When you first visit KHEAA-Alabama’s website for Alabama students, you’ll notice it’s constructed in outline form, with a limited amount of text on most pages. The information you need can be found if you continue to click, though, and once that becomes clear you’ll find the site very helpful.

You should expect to find general information on financial planning for college rather than specific details about how to obtain any particular loan, although there are full descriptions of the Stafford Loans (now usually referred to as the Direct Loan program) and the PLUS Loans, which are a type of Direct Loan. Both those loans are federal: the state of Alabama does not make student loans, and those are the two categories of student loan recommended by KHEAA-Alabama.

Federal Loans For Alabama Students

After exhausting financial aid possibilities like grants and scholarships, which do not require repayment, Alabama students are referred to the standard federal loan programs, which will always carry lower interest rates than a private loan. Here are your choices:

• Direct Loans, both subsidized and unsubsidized
• Direct PLUS Loans, and
• Perkins Loans.

Direct Subsidized Loans

The Direct Subsidized Loans are for students with financial need, so the terms are more favorable than those found in the unsubsidized variety. Your school’s financial aid office will calculate how much to lend you, and there are three periods during which the government will pay the interest on your loan:

• While you attend school at least half-time
• During your grace period, which is the first six months after your departure from school (by graduation or otherwise), and
• During any deferment, which means a period in which your loan payments have been suspended by mutual agreement.

Direct Unsubsidized Loans

These are similar to the Direct Subsidized type, with two main differences: you are not required to demonstrate financial need, and you must pay interest during the life of the loan, even while you’re still in school. If you do not do so, the interest will add to the principal balance of your loan, meaning you will have a larger amount drawing interest as you repay. That makes your loan more expensive, so make a subsidized loan your first choice, if you have that option.

Undergraduates, graduate students, and professional students may be eligible for unsubsidized loans.

Direct PLUS Loans

The Direct PLUS Loans are for graduate students, professional students, or parents of dependent undergraduates. Half-time enrollment, at minimum, is required. To receive one of these loans, the borrower needs either good credit or a creditworthy cosigner, which the PLUS program calls an endorser. The endorser will have to repay the loan if the borrower defaults.

Perkins Loans

The Perkins Loans are intended to help students with exceptional financial need, and accordingly they carry only 5% interest. In this loan program the school is the lender, and since all schools do not participate you should contact your financial aid office to find out whether you can make a Perkins Loan. If you succeed, you will make loan payments to either your school or its chosen loan servicing company.

Note: In fiscal years 2010 and 2011, no new federal appropriations were made for Perkins Loans, meaning the program is running on what borrowers repay. Funds for individual colleges are limited, so you should submit a Perkins application as soon as you can in each lending year.

Private Loans For Alabama Students

The KHEAA-Alabama site refers students who still need extra money for college after taking the maximum in federal loans to the Alabama Student Loan Marketplace, which gives you a starting point in searching for a private lender. You will be able to find a short list of financial institutions that make student loans in the state of Alabama, some of which are in Alabama while others are in different states, but you should not take that as an endorsement of any one lender’s loan products.

As always with private loans, you must select carefully among the student options, remembering that private lenders always require a profit.