The
cost of
attending college is expensive. It is estimated that by the year 2005, annual
tuition at state colleges and universities will cost well over $25,000. That
totals over $100,000 for a liberal arts bachelor degree. Scholarships and
grants are becoming few and far between, and the criterion qualifies less than
5 percent of all High School seniors. For most college students, student loans
are the only payment method available. Student loans can be a reasonable way to
finance an education, but on the other hand, if not carefully planned, student
loans can be a disaster. Obtaining the loans are easy enough, yet maintaining
them are quite another story.
Most
students fail to research the loans before signing on the dotted line. The
first trip to the financial aid office usually results in a student filling out
a generic form for state and federal funds; for which only a small percentage
of students every qualify for--even those without an income, or those from low
income families are rarely granted adequate student aid. Next, the student is
handed, again, a generic form to apply for student loans. Here is where the big
mistake is made. Never apply for any loan simply because the college or
university gives you the application. You need to research all of the lending
institutions for the varying interest rates. The school may give you an
application for loans with interest rates between 8 and 12 %. However, if you
research lenders you may find loans that have interest rates as low as 6.00
percent! It is much like applying for a credit card; the rates vary.
The
loans
with the best interest are Perkins loans. They have an interest rate set by the
Federal government for 5 percent. They are available through your school, but
are rarely mentioned unless you specifically ask for them. Make sure that you
have applied for Perkins loans before going forth with the traditional student
loans--Stafford Loans (formerly GSL: Guaranteed Student Loans). If you are a
student of Health or Medical Sciences (HEAL), MBA (Excel) or Law (LSL), there
are special loans with very low interest rates designed especially for those
subject majors. However, you need to inquiry specifically about these loans, as
they are rarely mentioned.
Never
take
our private loans or cash advances from credit cards, lines of credit, or
equity loans to pay for tuition. Private loans, such as personal loans, begin
to accrue interest the moment you or your school cashes the check, whereas
subsidized Stafford loans do not accrue interest until 6 months after you
graduate (the government pays the interest while you are in school, beware
though, unsubsidized Stafford loans do accrue interests even while you are attending
school). Once you graduate you have the option to consolidate all of your loans
into one payment. This is part of a federal program for student loan
consolidation, however you can only consolidate loans granted by approved
Federal student loan lending agencies and programs; personal loans granted by
your bank do not qualify.
Charging
your tuition or taking a cash advance is a disaster waiting to happen. Most
credit cards have APRs that vary from 14-21%. The average Stafford loan is %
8.25-9.00. That is almost 50% less. Many people make the mistake of taking out
equity loans on their homes, cars and other property. Initially this sounds
like a great idea, since the interest and payments are low. However, an equity
loan is a secured loan. If for any reason you cannot meet the payments, the
terms are often non-negotiable, and you risk losing your home or the property
that you used as collateral to receive the loan. Once you graduate, it may take
you several months to find a job. You don't want to risk foreclosure or
repossession because you couldn't make the payments.
Before
the
student loan comes due--6 months after you graduate, be sure that you have
arranged a pre-planned a budget. If you have $25,000 in loans, which is the
average debt carried by college graduates, your payment will be between $250.00
and $300.00 a month. And note that with rising tuition costs the amount of debt
carried by college graduates will most certainly double, if not, triple in the
next 4 years. There are a few repayment options to choose from; graduated
payment, income sensitive payment, and the standard 10-year repayment payment.
Many people opt to go for the graduated payment plan because the payments start
off small and then increase as your assumed income increases. However, the
graduated payment "assumes" a future income--an income that you
haven't even generated yet. The best way to ensure that you can afford the
payment is to choose the plan with the lowest payment, and pay as much as
possible over the minimum each month. There is no penalty for pre-payments or
over payments. This works to your advantage because if for some reason you lose
your job, or your income decreases, you are already ahead of the game due to
your having overpaid. Any amount that you pay over the minimum payment is
credited toward the principal of the loan, thereby making your overall interest
lower!
If
you
should lose your job, or have an economic hardship, never ignore your loan
payments. You must call SLSC (Student Loan Servicing Center) and request a
deferment form for economic hardship, or unemployment. The great thing about
federally subsidized student loans is that they will work with you during
difficult times. Standard loan services, such as personal loan providers, will
not work with you; you either have the money, or you'll be turned over to a
collection agency. You cannot dismiss student loans in bankruptcy proceedings.
The Federal Government means to get its money, and will go through any and all
means to do so. Your wages can be garnished, and your tax returns seized. So,
if you are having any difficulty in paying the loans, you must contact the loan
provider to apply for a deferment. Disregarding the bills only leads to
financial chaos as your interest will continue to accrue and before you know it
you are in serious financial crisis.
The
consumer
credit consolidation companies that aid people in consolidating bills as part
of a federally funded program do not assist in the matters of student loan
consolidation. The only way to rearrange a payment schedule is through the
student loan provider. Unanticipated financial crisis is something most
students do not ever consider before they apply for student loans. To avoid
financial distress you must plan ahead in order to live within your means. For
many students this means going to school part-time while working a part-time
job to avoid maximizing student loan amounts. If this allows you to pay off a
majority of your tuition, without causing grades to suffer, do consider it.
Planning
is
the key to not being overburdened by student loans. By researching for the best
interest rates, maximizing your Perkins loan availability, cutting expenses,
and paying whatever you can--even if it is $10 a month--over the minimum, you
will be able to manage the major expense of student loans.