Ask the Experts: APR, Grace Periods, & College Service Companies

March 16, 2012 | posted by College Money Insider.

Congratulations to all the students receiving college admissions letters this month! It’s been a long road to get to this point, but hopefully seeing an acceptance letter in the mail will help you appreciate the hard work you’ve put in during high school. We get a lot of questions about financial aid this time of year, so read on for answers to three of the most common ones we’ve received. If you have a question about navigating through the financial aid process, then be sure to submit them here.

Q. What is APR and how important is it?

APR stands for annual percentage rate, and it is one of the terms by which you can evaluate different loan options. It is very common for people to confuse a loan’s APR and interest rate. The interest rate is simply the percentage of a loan amount that a lender charges you to borrow funds. APR takes into account any additional lender costs that are associated with the loan, such as origination fees, service charges, etc. Because APR includes more fees in its calculation, the percentage is often higher than that of the interest rate. As you can see, APR is a very important metric to look at because it gives a more complete picture of what you are being charged.

Q. When do you start paying off loans?

The grace period, or the period of time before you have to begin repayment, will depend on the type of loan you get. The grace periods for federal loans break down like this:

?        Stafford loans: 6 months

?        Perkins loans: 9 months

?        PLUS loans: Immediate repayment

For private loans, repayment options are separated into 3 categories:

?        Full deferral: Principal and interest payments are deferred until after graduation. Grace periods vary, but are generally 6 to 12 months.

?        Interest only: Interest payments are due while in school, but the principal is due after graduation. Grace periods range from 2 to 6 months.

?        Immediate repayment: Principal and interest payments will start immediately after graduation.

Q. Are companies that charge money to help get aid (filling out FAFSA, providing tips & information about scholarships) worth it?

The answer to this will depend strictly upon your personal situation. The FAFSA form has gotten much easier to fill out, and the first F in FAFSA does stand for free, so it might not be necessary to hire a professional. It’s also unlikely that a company will have some magic formula that will automatically secure you thousands of dollars in financial aid. They might be able to point you in the right direction, but before you put down money with a company, make sure to exhaust all the free resources you have at your disposal, such as the Internet or your school’s financial aid office.

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