Unsubsidized direct loans most common at CMU; more students given pell grants

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Kirk Yats, director of scholarships and financial aid, said students who plan to borrow loans should create a budget for financial management.

“Always set up a budget and try to live in that budget,” he said.

Yats said it is important for students to understand loans will need to be paid back with interest.

“Only borrow what you really need,” he said. “Don’t just borrow because you want to make a car payment or go on spring break.”

Diane Fleming, associate director of client services for the Office of Scholarships and Financial Aid, said OSFA encourages students to know exactly what their cost of education will be. She said direct costs to education include tuition, living expenses, and books and supplies; indirect costs include personal and travel expenses.

Fleming said it is important for students to maintain a budget because their loans will determine future incomes after graduation. She said a maximum loan debt of $31,000 would equal $345 monthly payments.

Student loan and repayment options depend on the amount of family contribution a student will receive, Fleming said. Students with no family contribution will have $9,500 in loan debt with a Federal Pell Grant, and they will be approximately $5,000 short to pay for their first year of education.

“We seriously advise students in that situation to go to community college for the first two years,” she said.

She said juniors and seniors can borrow more money than freshmen and sophomores, so students that attend community college will be able to borrow more after they earn associate’s degrees.

Loan types

Students must complete a free application for Federal Student Aid to determine their financial need for loans and be enrolled at least halftime to activate their loans. Types of loans include subsidized, unsubsidized and Parent Loan for Undergraduate Students.

Yats said federal loan data shows unsubsidized direct loans were the most common loans at Central Michigan University in the 2009-10 academic year, with an unduplicated head count of 13,081 students who paid $60.25 million.

Subsidized direct loans were the second most common loans, with 10,419 students who paid $45.12 million.

A total of 202 students with graduate PLUS loans paid $2.41 million during the same academic year.

PLUS Loans for undergraduate students were not included in the data because the students’ parents take on the loan debt, Yats said.

Yats said there are more unsubsidized loans than subsidized loans because unsubsidized loans are not based on need. He said unsubsidized loans are the only option for students who do not qualify for subsidized loans.

Loan information on ED.gov said subsidized loans are for students who have financial need based on federal regulations. Interest for subsidized loans is not charged during the time when the student is enrolled in school at least halftime, the grace period and deferment periods. The grace period lasts six months after the student drops below halftime enrollment, graduates or withdraws from school.

Unsubsidized loans are not based on financial need, and interest is charged during all periods.

A PLUS loan allows parents to borrow from the federal government to help pay for their student’s education. PLUS loans can apply to dependent students or students at the graduate or professional level. Interest is charged during all periods, and repayment begins the day after the final loan disbursement.

ED.gov reported the interest rate for direct subsidized loans for undergrads with first disbursement date between July 1, 2011, and June 30, 2012, is 3.4 percent. The interest rate for direct subsidized loans for graduate students and direct unsubsidized loans for all students is 6.8 percent. The interest rate for direct PLUS loans is 7.9 percent.

Pell grants

An article on CNNMoney reported that as a part of the debt ceiling deal to reduce deficits, Congress would cut subsidized federal loans for graduate students, which do not charge interest on the principal of student loans until six months after graduation. The money saved from the student loan cuts would help fund Pell Grants. Congress would also eliminate a special credit for students who make 12 months of loan payments on time.

These changes would take place July 1, 2012.

According to an article on WSJ.com, the $17 billion increase in Pell Grant spending that came at the expense of cutting the graduate school subsidies provided only enough money to maintain Pell Grants for undergraduates through the 2013-14 school year. This allows the maximum Pell Grant to stay at $5,550 per student, per year.

“This guarantees that the level of Pell Grant funding for 2011-2012 and 2012-13 should not need be reduced,” Fleming said in an email. “Keeping the maximum award at the same level as it was in 2010-11 through the next two years will directly benefit CMU students, in as much as they would not see a reduction in their Pell Grant award.”

Fleming said there was almost a 20 percent increase in the number of Pell Grant recipients from the 2009-10 and 2010-11 academic years. She said 6,629 students received Pell Grant awards in fiscal year 2010, and 7,908 students in fiscal year 2011. She said she expects more students will receive Pell Grant awards in fiscal year 2012, but the number will not be known until the end of the summer.

Students can choose from a variety of repayment plans based on their income and career plans. According to ED.gov, paying back loans generally takes 10 to 25 years depending on the repayment plan. The more time loans are in repayment, the more interest there is to pay.

ProjectOnStudentDebt.org said the average debt of CMU graduates in 2009 was $26,615.

Yats said students should be wary of private loans not certified by OSFA because they often use deceptive advertising. He said private loans are not federally regulated and can have “extremely high” interest rates of up to 18 to 20 percent. These private loans also have rigid repayment options and severe penalties for students who default, he said.

“The key is to ask questions and exhaust all federal loan options before considering private loans,” he said.