Types of Loans

Samuel Merritt University offers a variety of loans to students to meet the cost of education.

Direct Stafford Loans There are two types of Direct Stafford Loans: Subsidized and Unsubsidized. You do not have to start repaying the principal of either type of loan until six months after you are out of school (or after you stop attending at least half-time).  Read more about Direct Stafford Loans at the Department of Education website.

The primary difference between the two types of loans is who pays the interest on the loan while you are enrolled in school, during grace and deferment periods. If you can demonstrate you have need for financial assistance and are eligible for a Subsidized Direct Stafford Loan, the government pays the interest for you until your repayment begins. The other difference is that Subsidized loans may not be used to replace the student's expected family contribution, but Unsubsidized Direct Stafford loans may be used for this purpose.

Eligibility for the Unsubsidized Direct Stafford Loan is not based on financial need. If you borrow from this loan program, you will be responsible for paying the interest that accrues from the time you borrow the loan through repayment, including when you are in school. The interest can be capitalized, which means it can be added to the principal amount of the loan for later payment. In this case, you end up paying interest on the capitalized interest.

All Direct Stafford Loan borrowers are charged certain fees called origination and insurance fees. These combined fees cannot exceed 4% of the amount borrowed and they are deducted up front. Thus, if you borrow $1,000, you will receive approximately $960, but you must repay the full $1,000.

If you apply for a Direct Stafford Loan, make sure you understand all of the costs associated with borrowing and know the actual amount of funds you'll have available to help meet your expenses.

Once you start repaying either a Subsidized or Unsubsidized Direct Stafford Loan, the interest rate on the loan varies each year beginning on July 1st. The actual interest rate is calculated based on a formula, but it can never be more than 7.9%. You normally have up to 10 years to repay your Direct Stafford Loans, as long as you pay at least $600 per year ($50 per month). Your actual monthly payment may be more depending on the amount you borrow.

With the approval of Department of Education, and under certain specific conditions--such as when you re-enroll in an educational program of study or if you are experiencing economic hardship--you can delay or interrupt repaying your student loans. These periods are called deferment periods. During your deferment periods, the government pays the interest for you on Subsidized Direct Stafford Loans. You are responsible for paying the interest during deferment periods for any Unsubsidized loans you have borrowed.

Under Department of Education, there is also a provision for a Direct Consolidation Loan Program. This program provides borrowers who have multiple types of loans the opportunity to combine those loans for repayment purposes. Since this program is designed to provide a repayment option, it is not detailed here.

When you compare the costs of attending different schools, you should compare the amounts you may have to borrow. If your academic program will take more than one year to complete, try to project the total amount of debt you will have to assume to complete the entire program. Then consider whether you'll be able to repay that debt based on typical starting salaries for the job you're likely to get after you finish school. Each school can help you make projections about total debt and repayment amounts. You can also get information about starting salaries from the school or from library reference books. The Financial Aid Information Page offers a variety of financial aid calculators.

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Direct PLUS Loans are available to parents who do not have an adverse credit history. These loans are not based on financial need. Parents may borrow through this program to obtain money for the cost of college for their dependent children. These loans carry an interest rate that varies annually, but may not exceed 7.9%.

The origination and insurance fees are the same as for the Direct Stafford Loan. The first payment of interest and principal for Direct PLUS borrowers is due 60 days after the loan is fully disbursed and ends no later than 10 years after repayment begins, excluding periods of deferment and forbearance.

A Direct PLUS borrower may qualify for one of the loan deferments listed earlier under the Direct Stafford Loan Program. Parent borrowers who qualify for a deferment may have payment of their loan principal deferred and pay interest only on the loan. Or, they may capitalize the interest, which means it will be added to the loan principal. However, whenever feasible, parent borrowers (like all other borrowers) should try to pay the interest. Otherwise, they will end up paying interest on interest, as well as on loan principal. This can make the cost of borrowing more expensive than necessary.

You can get Direct Stafford and Direct PLUS loan applications and more detailed information about Direct loans from the school's financial aid office.

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Perkins Loans are low-interest loans (currently 5%) with generous repayment conditions. You don't start repaying the loan, or interest on the loan, until you finish school or drop below half-time attendance. Even then there is a 9-month grace period before you actually start paying back the loan.

Some students are afraid to borrow money for school, but you shouldn't be. If you must borrow to help pay for school, look at the loan as an investment in your future. And remember, the grace period allows you time to find a job. Further, you might be able to delay repaying your Perkins Loan even after the grace period has ended. If, at that time, you are seriously looking for a job but have not been able to find one, or if you are working as a teacher in certain areas or are engaged in specific full-time volunteer services, you can wait longer before repaying the loan.

Under certain conditions you can defer paying your loan for a few months or even a few years and finish repaying it later. As long as you keep the school that loaned you the money informed about where you are and why you wish to delay repayment, reasonable repayment arrangements can usually be made.

Under specific conditions defined by law you may not have to repay your loan at all. All or part of your loan may be canceled if you teach in certain areas, work in certain law enforcement fields or for child or family service agencies, become a nurse or medical technician, or serve as a full-time volunteer in certain programs.

Once you do start repaying the loan, you can spread your payments out over as many as 10 years, and you may be able to pay as little as $40 per month. Your actual monthly payment will depend on how much you borrowed. If you must borrow money in order to further your education, the Perkins Loan is the most desirable type of loan to receive.

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Private Alternative Loans are available to students who must borrow additional funds to pay for their cost of education.  To assist in choosing a lender for an Alternative Loan, students can go to ELM Select to compare lenders side by side. ELM Select is a search and comparison tool that allows students to compare and apply for Alternative Loans with various lenders. Their features allow students to choose lenders that best fit their needs and financial situation. Once the student has chosen a lender, they must follow their lenders instructions to apply for the loan. If you have been awarded an Alternative Loan on your award letter, take a look at the ELM Select website to choose a lender and apply for the loan.