Shopping for an education loan is an important activity. Loans can differ widely in terms of costs, benefits and repayment length. The education loan calculator is a tool that has been developed for use by students and parents to compare loan terms and costs. It is recommended that you look closely at your bottom line borrowing expense since the decision you make on a student loan is one that can last from 10 years up to 25 years and sometimes longer.
Borrow Amount
Stafford Loans
Depending on their financial need, students can borrow a subsidized Stafford, an unsubsidized Stafford or a combination of the two.
(See your financial aid office to determine whether you demonstrate financial need.)
Borrowing limits per year are as follows:
Dependent student
- Freshman - $5,500 ($3,500 between subsidized and unsubsidized, plus an additional $2,000 unsubsidized)
- Sophomore - $6,500 ($4,500 between subsidized and unsubsidized, plus an additional $2,000 unsubsidized)
- Junior/Senior - $7,500 ($5,500 between subsidized and unsubsidized, plus an additional $2,000 unsubsidized)
Independent student
- Freshman - $9,500 ($3,500 between subsidized and unsubsidized, plus an additional $6,000 unsubsidized)
- Sophomore - $10,500 ($4,500 between subsidized and unsubsidized, plus an additional $6,000)
- Junior/Senior - $12,500 ($5,500 between subsidized and unsubsidized, plus an additional $6,000)
- Graduate/Professional - Please contact your financial aid office for information.
Lifetime limits
- Undergraduate dependent - $31,000 (up to $23,000 may be subsidized)
- Undergraduate independent - $57,500 (between subsidized and unsubsidized)
- Graduate or professional - Please contact your financial aid office for information.
PLUS Loans (parent of undergraduate students)/Alternative Loans
Cost of attendance less any other financial aid.
Loan Term
Stafford and PLUS
The standard statutory repayment term is 10 years but graduated, income-sensitive, extended, and level payments plans are available,
depending on the lender and/or loan balance.
Alternative
Loan terms vary from lender to lender. Typical alternative loan repayment terms are 15 - 20 years.
Interest Rate
The current interest rate for subsidized undergraduate Stafford loans is fixed at 6.0%: effective July 1, 2009 the rate drops to
5.6% for new loans. For all other Stafford loans the interest rate is fixed at 6.8%. For PLUS loans, the rate is fixed at 8.5%
for borrowers/parents attending institutions that participate in the Federal Family Education Loan Program (FFELP) and 7.9% for
institutions participating in the Direct Loan Program. Contact your financial aid office if you are unclear in which program your
school participates. Interest rates for alternative loans vary and depend on your creditworthiness. Contact your loan provider to
determine the interest rate for which you would be eligible.
Fees
Most lenders charge an upfront fee of varying amounts. The origination and default fees for Stafford loans are typically a total of
2%. For PLUS loans, fees are typically 4%. Fees for alternative loans vary by lender and may vary by the borrower's credit worthiness.
Contact your loan provider to determine the fees associated with the loan for which you are applying.
FICO Score and Range
A FICO credit score is a number based on a statistical review of a person's credit profile. It is used to determine the
creditworthiness of that individual. Lenders used credit scores to determine the potential risk involved in lending money to consumers.
FICO scoring is the oldest scoring system in the country but other proprietary models exist and are in use by other credit bureaus.
For purposes of the calculator, non-FICO scores must be translated into their FICO equivalent.
FICO score ranges roughly correspond to credit quality, as follows:
- 751-850: Excellent
- 700-750: Good
- 650-699: Average
- 600-649: Below average
- Below 600: Not creditworthy
Most private loans are made to borrowers with a credit score of 700 and above.
Interest Capitalization Frequency
Capitalized interest is the accrued interest added to the borrower's outstanding principal. Subsequent interest accrues on the new
total principal balance. Because the principal increases, so does the total cost of the loan. Interest is usually capitalized once
at repayment but it can be capitalized as frequently as quarterly. The more frequently a loan is capitalized, the more the total cost
of the loan increases.
Index
Indexes are used to set interest rates. They are sometimes called "base rates." Typical indexes are "prime" and "LIBOR."
The values of prime and LIBOR can be found in the financial pages of most newspapers.
Spread
The spread is the margin (typically expressed as a percentage) over (or under) the index rate. The index and spread together are the
interest rate.
Estimated APR
APR is the total cost of loan funds, including all fees and interest. It is usually expressed as a percentage. The APR on a loan
can vary among lenders because of differences in up-front fees, application fees, deferment periods, frequency of capitalization of
interest and interest compounding, and repayment terms, even if the stated or published interest rates are the same.
Financial Borrower Benefits
Many lenders offer borrowers financial incentives to both create a competitive advantage and to reward borrowers for repaying
their loan responsibly. Borrower incentives typically fall into three categories: automatic benefits, "pay-on-time" benefits, and
auto debit benefits. A lower effective APR results from factoring borrower benefits into the cost of the loan.
Financial Benefits Likelihood
Attractive borrower benefits reduce the overall cost of borrowing. Care must be taken, however, to qualify for the benefits that
are not automatic. Typically students are offered an interest reduction after making 36-48 on-time payments or when setting up
automatic debit of their monthly payment. Benefits can be forfeited if a borrower fails to continue to meet the eligibility
requirements or consolidates his/her loans at repayment.
Monthly Payment
Typically, education loans are repaid monthly, although there is no prepayment penalty so borrowers can make payments virtually any
time. By making monthly payments electronically through an ACH debit process, borrowers can often be eligible for a .25% interest
rate reduction.
Monthly Payment per $1,000
For debt management and budgeting purposes, lenders will provide the estimated monthly payment per $1,000 borrowed. For example, if
the estimated monthly payment per $1,000 is $50 and a borrower has borrowed $5,000, the estimated monthly payment would be $250.
Program Name
The name used to describe the loan program.
Total Amount of Repayment
The total amount of repayment is the sum of the principal borrowed, including loan fees, and the interest that accrued on the
principal borrowed.
Total Borrowed
The total borrowed is the original amount of loan proceeds plus any fees that are charged upfront on the loans.
Total Cost per $1,000
Often borrowers will be interested in calculating the total cost (interest fees and principal) of their loan per $1,000. For example,
if the total cost of a loan is $1,600 per $1,000 and a borrower has borrowed $5,000 the estimated total cost would be $8,000.
Total Cost per $1,000 w/ Benefits
Many lenders offer borrower benefits or discounts as a competitive strategy. Some benefits are applied automatically, such as waiving
the origination or default fee, but the most common type of borrower benefit is earned when the borrower makes a certain number of
on-time payments or sets up an auto-debit for their monthly loan payments. A useful statistic provided by lenders is the total cost
per $1,000 with benefits so the effect of the benefits can be clearly seen and evaluated.
Total Cost per $1,000 w/o Benefits
Similarly, the total cost per $1,000 without benefits is a useful metric so borrowers can see the positive effect qualifying for
benefits has on the total cost of the loan.
Total Fees
Many loans have additional charges. For Federal loans, the most common fees are a default fee and an origination fee. These fees are
usually presented as a percentage of the requested loan amount. There are two ways that fees are paid: they can be added to the
principal or paid out of the loan proceeds. Federal loans have their fees paid from the proceeds while private loans usually have
the fee added to the principal. For example, for a $10,000 Federal loan with a 5% fee, the fee is deducted from the loan amount and
the borrower receives $9,500 but the debt remains at $10,000. If the fee is added to the proceeds, the borrower would receive a loan
for $10,000 but the principal amount borrowed would go up to about $10,500.
Total Interest Paid
Interest is the cost of borrowing money. To calculate the total interest paid, the borrower should subtract the original amount of
the loan from the total amount which will be repaid.
Rate Reset
A variable interest rate is a loan expense that can change over time. Rates can be reset as frequently as monthly or quarterly or as
infrequently as annually. By resetting rates the lender can keep the loan matched up with the current interest rate environment.
Co-signer Release
A cosigner is recommended (and usually required) for students borrowing alternative loans. It typically increases a student's chances
of approval and of obtaining lower rates. A co-signer is someone with a good credit history and good credit score. Co-signers are
responsible for the loan if the borrower does not pay. Many lenders offer a co-signer release after 36-48 on-time payments by the
primary borrower and proof of a good credit score.
