Missouri Student Loan Options
Search for the Right Federal & Private Programs
The state of Missouri has established the Missouri Department of Higher Education (MDHE) to disseminate information on planning and paying for college. MDHE once served as a loan guarantor and originator for the Federal Family Education Loan Program (FFELP), but the law changed in 2010. The U. S. Department of Education now makes student loans directly, and accordingly the new loans that continue the FFELP tradition are called Direct loans. However, most Missouri FFELP loans dated before July 1, 2010 still use MDHE as guarantor.
MDHE in general does a good job promulgating facts needed by Missouri students who are headed for college, but in one respect their website can cause confusion: instead of changing descriptions for all new federal loans to substitute the new “Direct” for the old “Stafford,” the old wording is retained. The federal websites now say “Direct,” so that’s what to look for when consulting federal source material. The federal loans are recommended as first choices for Missouri students, because of their lower cost and more flexible terms of repayment.
Federal Loans For Missouri Students
You can find a general overview of available federal student loans here. The federal government currently provides two varieties of student loans, Direct (with four subtypes) and Perkins (for needy students).
The William D. Ford Federal Direct Loan Program‘s products are characterized by price (cheaper Subsidized for those with financial need as opposed to more costly Unsubsidized, for which no financial need is required) and by borrower (the PLUS loans made to graduate students, professional students, and parents of dependent undergraduates).
Direct Subsidized loans are like Unsubsidized in that the amount you can borrow is calculated by your school’s financial aid office. But the fact that Subsidized loans go to students with financial need means the government pays interest during three periods not covered for Unsubsidized borrowers. Those periods occur while you are enrolled at least half-time, during the six months after you leave school (called the grace period), and during any deferment, or time during which you are temporarily relieved of making payments by agreement with your lender.
2013 fixed interest rates for both loans are as follows: 3.4% for Direct Subsidized, and 6.8% for Direct Unsubsidized. The origination fee for both is 1%.
For Direct PLUS loans, the U. S. Department of Education serves as the lender, and the loans are made through participating schools. The fixed rate for a PLUS loan is 7.9%, and the most you can borrow is your Cost of Attendance (an amount determined by your school) less the amount of all your other financial aid. Unlike other Direct loans, the PLUS loans are credit-based, meaning the borrower must present an acceptable credit history.
If the borrower lacks sound credit, the USDOE will permit use of a co-signer (called an endorser) to take responsibility for repaying the loan. The endorser must be prepared to repay if necessary, because MDHE will perform administrative wage garnishment if repayment does not occur.
If you do run into difficulties with federal student loans, Direct Consolidation Loans, which are the fourth type of Direct loan, are available as a hedge against default. This loan lets you combine your existing federal (but not private or alternative) loans into one instrument, in order to combine the payments and lengthen the repayment period. The trade-off works for your benefit, because although consolidation will make your loan more expensive over its lifetime, it will preserve your credit.
The Federal Perkins Loan Program is designed to help students who have what is called exceptional financial need, meaning those Pell Grant recipients who have the least money for school as defined by the amount of their Expected Family Contributions (EFC). The EFC is calculated using financial information found in the Free Application for Federal Student Aid (FAFSA).
Perkins loans are made by your school, which serves as lender using a revolving loan fund to which previous borrowers add their payments so new loans can be made. That means there is always a limited amount of funding available, so applications are prioritized by need. Furthermore, all schools do not participate in the Perkins program. Ask your school’s financial aid office whether Perkins is an option for you.
Alternative Loans for Missouri Students
Alternative loans are borrowed from private lenders, and are thus more expensive than federal loans. Always borrow as much as you can in federal loans, and use the private market only for the very last fraction of your college financing plan. Some colleges will provide a list of lenders and others will not, but you should always conduct independent research on any private lender recommended to you.
If you or your parents have a working relationship with a local bank, you may wish to consult a representative there. Information on national lenders is available here.