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How State Loans Can Help Finance Your Education

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Jessica Black College Coach Finance Consultant

Written by Jessica Blackon May 25th, 2023

My career in higher education administration began at a public state college when I was a work-study student at the financial aid office while pursuing my undergraduate degree. After getting my B.A. in Psychology with a minor in Business Administration, I worked for state government employment services. However, my true calling led me back to my roots in financial aid. As the Assistant Director of Financial Aid at a private liberal arts college in Portland, Oregon, I fostered educational access by overseeing a wide variety of daily operations. These included processing aid applications, establishing cross-departmental partnerships, matching scholars to endowment funding, and meticulously managing multiple funding streams for a diverse student population. Coming from a disadvantaged background as a Vietnamese immigrant and first-generation college graduate, my passion for improving student access to postsecondary educational funding runs deep.
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by Jessica Black, former financial aid officer at Lewis & Clark College In today’s higher education landscape, many students find there is a shortfall between a college’s cost of attendance (COA) and the financial assistance that is offered. Even with a combination of merit-based scholarships, need-based grants, and/or athletic scholarships, most undergraduate and graduate degree programs are not fully funded by gift aid. Some families decide to supplement what they can contribute from past savings and present income by tapping into federal student and parent loans. In addition to the federal loan options, there are currently over 20 states that administer education loan programs. Access to a state education loan is a nice option when additional loan funding is needed beyond federal direct student loans. The federal loans are offered to students who complete the Free Application for Federal Student Aid (FAFSA). There is no credit check required to borrow a federal direct student loan, and it is typically the most advantageous option in terms of having a competitive interest rate, lower origination fee, flexible repayment options, and borrower protection. We recommend that students exhaust this financing option prior to considering an additional Federal Direct Parent PLUS Loan, Federal Direct Graduate PLUS Loan (for graduate/professional students), private student loan, or state education loan. Comparing Options Why would a family select a state loan rather than the federal parent loan or private education loan?
  • The APR on state loans is usually fixed over the life of the loan and tends to be lower than what you could get from a federal parent loan and private student loan in the same academic year.
  • The fees on state loans are typically lower compared to a Federal Parent PLUS. Many state loans offer zero origination fees.
  • Whereas only a parent or stepparent can be a borrower on the Federal Parent PLUS Loan, some states offer a family loan where any relative could borrow the loan on behalf of the student’s education. For example, the Arkansas Family Loan can be applied for by extended family members and even by friends with no familial relation to the student.
  • To remain competitive with federal loans and private loans, most state loans offer a six-month grace period before loan repayment begins. Ascertain the grace period with your lender as different loans have different repayment options and accompanying deferment terms. There is often a 0.25% interest rate reduction if you set up auto pay.
  • The primary borrower must have a solid credit history. Otherwise, a credit-worthy cosigner is required. Unlike the Federal Parent Loan, state loans offer a co-signer release option after a certain number of months of consecutive on-time payments. This is an option for parents who eventually want the student to be the primary borrower.
General Overview
  • Unless otherwise noted, most state loans can be used by residents for both in- and out-of-state colleges, and by nonresidents who attend an institution in the state that offers the education loan.
  • Some state loans specify a maximum loan limit you can borrow but, typically, the total amount borrowed cannot exceed the college’s COA budget less any financial aid the student has already been offered, including any work-study allowance and federal loan(s).
  • The student must be enrolled at least half-time in a degree-seeking program at an accredited college or university and maintain satisfactory academic progress (SAP) as outlined by the school’s policy.
  • Some states offer specialty loans that are career specific. For example, the Alaska Supplemental Education Loan (ASEL) has a loan for specific medical and health-related programs, while the state of Washington offers a low-interest Aerospace Loan Program to in-state students accepted to the Washington Aerospace Training and Research Center (WATRC) program in Everett. Check with your state to see if there are any career-specific loan opportunities.
The following states offer some type of state education loans. Visit each state’s loan administration website to learn more:As with anything, research the fine print to find the loan that is a best fit for your situation.

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