December 11, 2017

Making Sense of Student Loans

Student loans are both a blessing and a curse for college. As much as they can help you pay for an education, they can also be confusing, complicated, and can put you in unnecessary debt if you don’t have some basic sense of how each works.

Common types of student loans:

  • Federal loans, including subsidized and unsubsidized loans
  • State loans
  • Private loans

Federal Student Loans

Federal student loans offer college students and parents some of the most affordable financial aid available, with attractive repayment terms and grace periods.

  • Subsidized loans are available to students with significant financial need. They are “subsidized” because the government pays the interest on the loan until students graduate or otherwise leave school.
  • Unsubsidized federal loans are not administered based on financial need and students are required to pay the interest as it accrues, or adds up.
  • The Stafford Loan is possibly the most popular and widely administered federal loan. This low-interest loan, requires no credit check, and comes in both subsidized and unsubsidized versions, making it valuable for nearly all students, undergraduate and graduate alike. It’s quite common for students to have loans for both subsidized and unsubsidized Stafford Loans, depending upon financial situation.
  • PLUS Loans are credit-based loans available to parents of college students and to graduate and professional level students.
  • The Perkins Loan program is a campus-based loan program available to limited numbers of students that can demonstrate exceptional financial need. Participating campuses have Perkins dollars available on a first-come, first served basis, so students should apply early for aid.
  • Federal Consolidation Loan is available for students that have multiple federal loans and may need to consolidate to save money and streamline their loan repayment.

Currently, all federal student loans are made available through the Federal Direct Loan Program—part of the U.S. Department of Education. To apply for federal student aid you can complete the FAFSA (Free Application for Federal Student Aid).

(As of July 2010, private banks and lenders ceased to administer any new federal student loans.)

State Student Loans

Many state higher education commissions provide college financial aid products, including scholarships and grants, as well as supplemental loans. You could very well find loans for undergraduates, graduates, and for students pursuing special career education such as teaching and nursing.

Private Student Loans

Private student loans are in limited supply, but where available they can help you pay the balance of a college tuition not covered by federal and state loans, and scholarships and grants. Make certain you borrow from a reputable lender and understand all terms of the loan before signing the master promissory note. Expect any private student loan to require you submit to a credit check.

Private college loans enjoyed a heyday just prior to 2007, thanks in large part to steep spikes in college tuitions and questionable “back door” relationships between some college financial aid officials and private lenders. Following an intensive investigation into the industry, many lenders ceased offering private student loans.

What You Should Know About Student Loans

There are many people who would like to continue their education in order to achieve career goals as well as ensure their preferred lifestyle can be enjoyed. Unfortunately, many are still unaware of the student loans available which can ensure that individual dreams come true. It is easier today than ever to finance higher education if one knows where to look.

Student Loans

Government loans and personal loans all serve to assist those who wish to continue their education. Often this involves an easy application process and, possibly, writing an essay identifying plans for the future, in order to qualify. Those from lower economic incomes often qualify more easily than those from higher incomes. However, money is available regardless of the financial status of the family.

Pell grants and Stafford loans are government funded. By completing an online application and submitting requested paperwork, money can be made available for the next school year. It’s important to note with these types of loans and grants that stringent timelines as well as guidelines must be followed in order to qualify for these funds. However, they not only frequently cover the cost of tuition, books, and school fees, but they also often add additional money to pay for transportation, housing, daycare, and other expenses.

Pell grants are money that, often, does not have to be repaid. One of the most common is associated with teacher education programs. Upon graduation if one works in a socio-economically depressed area for at least five years, funds borrowed through this source are waived for repayment. This makes this source of funding extremely desirable.

Stafford loans are also government loans, but these must be repaid. These also cover the cost of tuition, books, and other expenses that may be charged by a college or university. With the cost of higher education today, one should use this as well as personal loans only as a last resort. It is not uncommon for students to end up with bills that range from several thousand dollars to several hundred thousand dollars at the end of their journey.

Personal loans are also not a first choice. For those who come from families with higher incomes, however, this is often the only alternative. Frequently, interest rates will be higher and repayment will be based on a shorter duration resulting in higher payments. Additionally, with governmental loans, repayment begins in January following the year one graduates. For example, if one graduates in June repayment will begin the following January. Studies have shown that this is the length of time it generally takes to get a job in the subject of interest.

Many applications can now be completed online. This makes it much easier for the agency to process as well as make it easier for the student to complete. When completed, individuals are notified by mail or e-mail for confirmation of the information contained therein or asked to make corrections then resubmit.

Governmental loan applications are due no later than March 1st. For those who are graduating from high school in June and are interested in completing their education through a college or university, taxes must be completed prior to that date in order to complete the online application. The final application must be submitted no later than that date determined by the governmental agency in order to have the money by September. For those graduating in June, it’s never too early to begin thinking about how to best utilize student loans to finance one’s future.

Learn more, click here: http://www.fafsa.ed.gov/