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Q: I am 18. My parents split up when I was 5, and my father, who was an alcoholic, died of liver disease a year and a half ago. I'm the first person in my family to graduate from high school. My mother is out of work because of a disability and has no assets. For the past year and a half, I've been raised by a family friend who has encouraged me to attend college. I've received financial aid, but I need to raise $10,000 more. My guardian has offered to help, but I don't want to accept. I am looking for a job near campus, but can you guide me to other resources that will help pay for school?
A: As far as I am concerned, you have already graduated with honors from the school of life. Now let's figure out the next chapter of this amazing journey of yours.
First take a look at your financial aid package and make sure you have maxed out on federal Stafford loans. Staffords are either subsidized or unsubsidized. With subsidized loans, which are based on financial need, the government makes the interest payments while you are in school, after which you take over. The 2009–2010 freshman year limit for one of these loans is $3,500, and they're a great deal; for loans made this year, the interest rate is a low 5.6 percent.
Every student, regardless of financial need, is also eligible for an unsubsidized Stafford. The interest rate for these loans is a fixed 6.8 percent. In general, the combined freshman year total of subsidized and unsubsidized Staffords cannot exceed $5,500. So, if you have a subsidized loan for the maximum $3,500 amount, you can borrow an additional $2,000 in an unsubsidized loan.
For many students, another option is a federal PLUS loan, which parents can take out on a student's behalf to help pay for college. The interest rate is a fixed 7.9 or 8.5 percent, depending on whether it is part of the Federal Direct Loan program. Repayment is the parents' responsibility and doesn't begin until the student is out of school. Because your mom is out of work and would likely not qualify for a PLUS loan, you may qualify for the increased Stafford loan limits available to "independent" students; in this case, your combined Stafford loan limit would be $9,500 for freshman year.
I would also advise you to let your guardian help. There's nothing wrong with accepting assistance, as long as the giver can afford it. If an outright gift makes you uncomfortable, how about accepting a loan from your guardian? I'd suggest you set it up at VirginMoneyUS.com : You and your guardian establish the terms, and for a fee Virgin Money acts as the enforcer, making sure you keep up with payments.
Finally, try to avoid a private loan from a bank. These loans are often expensive, the interest rate is variable, and repayment options are less lenient. Your school's financial aid office will have info on Staffords and PLUS loans, or go to FinAid.org .
Ask Suze your questions about debt & saving money
Suze Orman's most recent book is her 2009 Action Plan: Keeping Your Money Safe & Sound (Spiegel & Grau).
From the November 2009 issue of O, The Oprah Magazine