May 1 is the official FAFSA deadline, but what is the FAFSA? And for that matter, how do I choose a student loan, and when should I consolidate? For this, we call upon Thomas W. Lustig, Vice President and National Sales & Marketing Manager, PNC Education Loan Center with 28 years of financial experience, who also applies his advice to his own children – one’s currently a high school senior, and the other is a college sophomore. Read on to find out about co-signing, interest rates, deferments and many more education-loan details that could bring you to the head of the class when it comes to paying for your education.

Q. What types of student loans are out there?
A. Stafford (subsidized & unsubsidized), Parent PLUS, Grad PLUS, Federal Consolidation and Private (alternative) Education Loans

Q. Are their differences in loans depending on level of education?
A. Yes. Federal loans have dollar limits, both annual and aggregate based on the level of education being sought. Private loans may also have different rate, credit and borrowing limits.

Q. What is the FAFSA, and how does this fit into the loan application process?
A. FAFSA is the Free Application for Federal Student Aid. It is a federal form that gathers financial and demographic data from a borrower and his custodial parent(s) if less than 24 years of age and attending undergraduate program. The FAFSA will gather information that will determine an applicant’s ability to qualify for subsidized loans or federal grants. Many states use this information to determine state grant eligibility as well. The results are also transmitted to the schools selected by the applicant.

Q. What steps does a student have to take to apply for a student loan?
A. For a Federal Loan:
1. Know the federal school code and federal lender code.
2. Secure a Federal Pin from www.pin.ed.gov.
3. Complete FAFSA.
4. Complete Master Promissory Note.
For a Private Loan:
1. Prepare to have a co-signer.
2. Know how much is needed to borrow.
3. Have all relevant personal and financial information available.

Q. How do students know they are getting the best rate?
A. Shop around, but know the differences between LIBOR & Prime, which are financial instruments that act as the index for loans. The best loan is one that you can afford to repay immediately, should your educational plans alter.

Q. What could student loans help cover (tuition, room, board, computer, books, traveling expenses)?
A. All those and commuting expenses, lab & other required fees. In special circumstances allowances for dependent care can be added to the cost as well.

Q. When are students required to start paying off their loan?
A. Read the promissory note for all the details, but Federal Stafford loans have a six-month grace period following graduation or dropping to less than half-time status. Most private loans have a similar grace period. Check with your lender. Interest will continue to accumulate for periods of deferment and grace for PLUS, unsubsidized Stafford and private loans.

Q. What is consolidation, and why may it be advantageous?
A. Consolidation is the word used to combine multiple loans into one new loan that usually has an extended repayment period. Consolidation usually refers to federal programs only, although there are a few lenders who may provide a private consolidation loan. It may be advantageous to consolidate if you have multiple loans and different lenders or if you need to reduce your monthly payment due to a high balance of outstanding loans.

Q. When is the best time to consolidate student loans?
A. During the grace period.

Q. Do you recommend married students consolidate their loans with each other?
A. No.

Q. Should parents co-sign on student loans?
A. Using a co-signer is a good way to ensure you are getting the best rate on a private loan. Parents are often good choices, but any credit-worthy co-signer would be acceptable.

Q. What is the current average interest rate of a student loan?
A. Federal Stafford loans are fixed at 6.8%. On July 1, 2008 the rate on subsidized Stafford loans for undergraduate students drop to 6.0%. PLUS loans are fixed at 8.5%. Many lenders provide interest rate reduction opportunities that can bring the rate lower.

Q. Does the interest rate change at one set time each year?
A. Federal Loans after 7/1/06 are fixed. Private loans are usually variable and often re-set each quarter.

Q. In what situations can a student defer his or her loan?
A. Deferments are usually available situations like in-school enrollment, financial hardship, unemployment or military activation. There are usually fewer deferment options on private loans.

Q. What are the advantages of paying ahead on a student loan?
A. Student loans are traditionally generating interest on a daily basis based on the outstanding principal of the loan. The quicker the principal is reduced, the less interest you will pay over the long run.

Q. What other advice do you have for educational borrowers?
A. Minimize the amount you need to borrow by using savings, income from current jobs and tuition payment plans first. Only borrow what you can afford to pay back and remember this is a very long-term obligation, so enter into it with your eyes open.