Federal/Government Loans For Out-of-State: Help!?

I’m going to an out-of-state college this fall and need to take out loans. I was wondering if someone could share with me any federal/government loans that have good rates or anything like that. Any info is appreciated.

Kristine:

There are 3 types of government educational loans that might help you pay for school – the Stafford, the Perkins and the PLUS. Two of those probably will not be available to you, and the third is extremely limited in how much you will be able to borrow.

The Perkins Loan is available only to students who demonstrate “exceptional need” on their aid application. Generally speaking, that refers to the lowest 1/3 of all aid applicants. When you complete the FAFSA, if your Expected Family Contribution score falls below 4041, you will be said to have demonstrated this “exceptional need”, but even then, it will be up to your school to determine whether they have sufficient funds to offer you a Perkins loan.

The PLUS in PLUS loan stands for Parents’ Loan for Undergraduate Students. As the name implies, the PLUS is available to the parents of undergrads, and not to the undergrads themselves. If your parents were looking for an ‘affordable’ loan to help you achieve the goal of attending your dream school, this would be the best place for them to start.

You are likely to qualify for the Stafford loan – the Department of Education’s sensational educational lending product for undergraduates. The Stafford loan is offered with a low, fixed interest rate of 6.8%, and the repayment period is 10 years, which doesn’t even begin until the borrower has been out of school for 6 months. Thanks to the government’s participation in the loan, an applicant does not answer any questions about income, debts or credit history – and no borrower is ever asked to provide a cosigner.

What’s the catch? Your annual borrowing limit. Freshmen can borrow $5500, sophomores can borrow $6500, and juniors and seniors can borrow $7500. Those are absolute borrowing limits – there are no exceptions. If you meet the government’s legal definition of an ‘independent financial aid applicant”, your borrowing eligibility increases by about $4000 a year.

Here’s the problem for you – federal student aid does not provide special, higher awards for students who choose to attend a more expensive out-of-state school. If you think about that for a minute, you will realize that an aid program would be pretty inefficient if it encouraged applicants to select the most expensive choice. The amount of financial aid that you will qualify for will be pretty much exactly the same if you decide to attend that out-of-state school, or if you decide to attend the nearest and cheapest in-state school.

You won’t be eligible for a bigger loan – you won’t qualify for more need-based assistance. In fact, if you look at it that way, it could be argued that the financial aid system is designed to DISCOURAGE students from attending an out-of-state school.

Recognizing that your federal aid will not cover much of the high cost of that out-of-state option, you’ll have to evaluate where else that money might come from. If you’re attending a state university in another state, the unfortunate truth is that state universities are not known for the amount of institutional aid they are able to provide to their students. If you’re looking for big dollar aid from the school itself, you’d have to focus on the very elite, expensive private schools. A school like Yale or Boston University will offer students a hefty sum of grant funds – a school like the University of Florida, or the University of Iowa will not.

I’ve also got bad news about the private educational loans that were traditionally offered by the larger banks. Very few banks are still making these loans, and it’s almost a 100% certainty that you will not be approved unless you can offer a very highly creditworthy cosigner.

Finally – I’ve got to be very honest with you. An out-of-state university can almost never be financially justified. Unless you’re the kind of person that doesn’t flinch about paying 80% more for your house than all your neighbors paid for their identical homes, or 80% more for the car that you drive than the sticker price on the window, you should be a little concerned about paying 80% more for the exact same education as most of your classmates. There should be more than “I want” involved in choosing this ridiculously expensive financial path, which – if you can even finance it – will leave you with an albatross of student loan debt around your neck for the next 15 to 20 years of your life.

Boy, I sure wish I could give you more positive encouragement, but I do my best to tell it like it is. I hope you gain some useful information from my answer – but I wish you the best of luck in achieving your dreams.