Student Loans Scary
The Cost of a College Education Can Be Outrageously High if You Are Not Careful
During the past 20 years the cost of a college education has skyrockted way past the rate of inflation. Educational cost are far above the reasonable loan repayment with an entry level job. The average entry level pay of most college graduates is not sufficient to repay student loans and cover living expenses. Because of this sad saga, you must be diligent in understanding college cost and the process of college financial aide, especially college loans.
There are different types of loans, with a wide variety of repayment options. Some of the loans are very reasonable, while some can become very expensive if you do not understand the repayment terms. Some loans do not charge interest during school attendance, during deferment, or the grace period, while others charge interest during all there of the latter periods.
Direct Loans are low-interest loans for students and parents to help pay for the cost of a student’s education after high school. The lender is the U.S. Department of Education (the Department), though the entity you deal with, your loan servicer, can be a private business.
With Direct Loans, you:
Borrow directly from the federal government and have a single contact- your loan servicer- may be a private institution for everything related to repayment, even if you receive Direct Loans at different schools.
Can choose from several repayment plans that are designed to meet the needs of almost any borrower, and you can switch repayment plans if your needs change.
The Direct Loan Program offers the following types of student loans:
Subsidized: for students with demonstrated financial need, as determined by federal regulations. No interest is charged while a student is in school at least half-time, during the grace period, and during deferment periods.
This is by far the best type of student loan, if you can qualify. The deferral of interest payments makes this an affordable loan, if paid in a timely manner after graduation. The current interest rate for this loan is 3.4%.
Unsubsidized: not based on financial need; interest is charged during all periods, even during the time a student is in school and during grace and deferment periods. The interest could almost double your payback at graduation, unless you make interest payments during college.
Because interest is charged during all periods, it is possible that this loan could spiral out of control if small payments are not made during the entire loan period, including while enrolled in school. The current interest rate for the unsubsidized loan is 6.8% (this may be different by the time you read this article).
PLUS: unsubsidized loans for the parents of dependent students and for graduate/professional students. PLUS loans help pay for education expenses up to the cost of attendance minus all other financial assistance. Interest is charged during all periods. This loan requires a credit check.
If you cannot survive a credit check 1. — You can get a co-signer (this person is responsible for repaying the loan in the event that a) you do not get a job, b) you loose your job, c) you cannot pay due to disability or long term illness. d) you do not make enough money to repay your loan. 2. — You can plead your case and write a letter of explanation of bad credit, this may give you an exemption.
The current interest rate for plus loans is 7.9%. This alone makes it imperative for graduate and profession students to make a payment during the school attendance, grace, and deferral period. A young girl was profiled on dateline who finished medical school, did a residency and saw her total school loan balance balloon from $250,000 to over $500,000 during residency.
She stated that she did not understand the interest charges during her residency deferral period. She could have kept this balance at $250,000 had she understood that making an interest payment during her residency would have solved this issue.
College loans are awarded after a student submits a FAFSA (Free Application For Federal Student Aide). This application can be started and finished online directly at the FAFSA government website, by creating a PIN. This procedure is more efficient than applying at one individual college of your choice, since you can verify that all of the requested information is completed in a timely manner.
Every single college you think you are interested in should be placed on the online application, and the completed application will be forwarded to the school of your choice when you decide where to attend.
Denial: Students have the right to deny any portion of the student aide as loans or ask to decrease the amount of loans that may not be needed. The fewer loans a student has the better off they will be later, due to low debt.
Consolidation: Eligible federal student loans can be combined into one Direct Consolidation Loan. The government gives you a deadline for consolidation of school loan debt. This may ease your payment burden if your loan payments are too high or come from too many sources.
You also have a choice of private school loans. Private school loans are more expensive than government loans, they have more fines and fees if not paid due to illness or disability, and they have less forbearance. With private student loans you have no safety net. Private loans are easy to get, but have no deferment or forbearance on the loans.
They have no sympathy for those who get into trouble. Because of this it is important to get the maximum from government loans before you think about private loans. Most students have no business at all with a private loan, considering the risk involved. You can understand more of the nuances of student loans by going here.
Related Link: Student Loans eBook