Undergraduate Student Loans

Undergraduate school loans may either be Federal educational loans, or private educational loans. Federal educational loans are given by the US Department of Education. These may or may not be subsidized. Federal assistance for undergraduate studies may also include several grants or scholarships, which the students need not repay. But in so far as undergraduate student loans are concerned, the student needs to repay them. Many of the Federal educational loans for undergraduate students may come at very low interest rates. For example, interest rate applicable on any Stafford loan for undergraduates pursuing his or her studies is just 4.5 percent per annum, calculated at fixed rate. In addition, the repayment plan does not start as long as the undergraduate is a student. Repayment schedule may start six months after graduation. Stafford loans for undergraduate students require that the student's manageable debts should be equal to or less than his or her starting salary.

Federal Perkins loans also come at low interest rate. Interest rate applicable on Perkins loans is just 5 percent per annum. Most of the terms and conditions applicable to undergraduate student loans are similar to Perkins and/or Stafford loans offered to graduates. But any such financial help is given to the student based on the financial requirements and constraints being faced by the student to continue education at that particular time. There are limits on how much Federal educational loans may be given at freshman level, sophomore level, and senior and junior levels of any undergraduate course. These again vary if the student is dependent on parents.

For availing loans from either the federal government or the private lender, the undergraduate student needs to prepare a budget of how much money is needed for his or her studies. This budget should include any expenses towards living as well, if the student does not intend to take up any jobs on part time basis. Each school has different requirements relating to books, tuition fees, and other charges. The exact amount that might be required to study in a particular school may be determined from the school's department for financial aid. Since processing such loans with either the federal funds, or private lender's funds takes some time, student should apply for such loans a few months ahead of joining the school. It is also necessary to follow up with private lenders, or the Federal department as the case may be.

To be eligible for any private undergraduate loans, credit rating of the student should be good. Moreover, the budget and cash flow projections developed for the period of studies should also be realistic. Lenders study the ratio of debts the student has to the student's income. If this ratio is above 37 percent then chances of receiving any help from private banks are remote, as debts exceeding that percentage are considered unmanageable. For the purpose of calculating this ratio, debt includes any automobile loans, mortgages, credit card dues, etc., apart from the proposed educational loans. Experts recommend that the student loan component in this debt should not exceed 15 percent.