You can get a student loan without any collateral through some government programs. Your parents also can get a government loan without collateral to help with your college expenses. You have to follow specific application procedures, pay higher interest rates than with a collateralized loan and follow strict repayment rules. Defaulting on a government-backed student loan can have long-term consequences for your credit.
Your best choice for a government-backed student loan is a Stafford -- either subsidized or unsubsidized. Neither requires collateral, but you must complete a Free Application for Federal Student Aid at your school. A subsidized Stafford loan is based on your financial need, and the government pays the interest while you are enrolled in school. You're responsible for the interest payments on a unsubsidized Stafford, but there is no need requirement.
Stafford loans have sliding scale limits -- as of the date of publication $3,500 for freshmen to $5,000 for upperclassmen. For graduate study, limits go up to $12,500, and those pursuing an advanced degree also are still eligible for Perkins loans of up to $6,000 a year. All Stafford loans give you a six-month grace period from the time you leave school, either through graduation or dropping out, before you start repaying. Then they generally must be repaid within 10 years.
Another type of student loan is a PLUS -- a Parent Loan for Undergraduate Student. In this case, your parent is the borrower, not you. These also require no collateral and aren't based on need, but your parents must demonstrate ability to repay. The interest rate as of 2010 was 7.9 percent, but it may be tax-deductible. The government may send the money to your parents or directly to your school, but your parents are obligated to repay the loan.
A Perkins loan is a low-interest -- 5 percent -- loan for students with exceptional financial need. Your school applies for this loan on your behalf and you are obligated to repay your school, not the government. You must give your school a promissory note for the amount of the loan -- $4,000 a year for undergraduate, $8,000 for graduate, with caps of $27,500 and $60,000 respectively.
Secured Student Loan
A secured student loan is one backed by collateral -- home equity, a car or other assets -- put up by you or your parents. These typically have lower interest rates than even government-insured, non-collateral loans because the lender has something it can seize for nonpayment. You probably still will have to complete the FAFSA application to provide financial information. These loans can be combined with non-collateral loans if necessary to cover the complete cost of college
Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.