College student loan
As an old saying goes it takes money to make money. This saying applies perfectly to the present college education scenario. Higher education is the surest way to achieve a better financial future, but then, it comes with a not-so-small price tag.
A quick look at some figures will clarify this point further. US Census Bureau tells us that those with a bachelors degree earn, on an average, 80% more than those with only a high school diploma. But to get a bachelors degree, you have to incur costs. In recent times, average tuition cost of a 4-year private college has risen 5.6% to $18,273 per year. In case of 4-year public school, the rise in average cost was even more steep 9.6% to 44,081 per year. (Source- Annual Survey of Colleges, The College Board, 2002-2003).
However, among all these gloomy cost figures, the bright spot is that the level of low cost federal financial support which helps you to pay for your education is also rising, just like educational costs. No wonder then, every year, more than 75% of college student loan which translates to more than 8 million students receive financial aid. And only a part of these over 8 million students happen to be a straight A student or a star athlete. That means you are usually eligible for more aid than you think you are.
College Student Loans (Stafford Loans).
One of the most affordable, and hence most attractive, ways to pay for your college education is to get a college student loan also called Federal Stafford Loans. They provide a number of benefits to college students, but two of the biggest benefits of a Federal Stafford Student Loan, are:
* Compared to the other forms of consumer financing, they charge a lower rate.
* You are not required to repay the loan until you are out of college.
College student loan also offers many other benefits, including:
* No need for collateral or credit check.
* No repayment required while you are in college.
* Currently, the interest rates for these loans are at an all-time low with the in-school rates even lower.
* Once you have made 48 consecutive on-time payments, you can qualify for an even lower rate as there is an Automatic-Debit discount of 0.25% and a 2.0% reduction in interest rate after these 48 payments.
* These loans are eligible for student loan consolidation which at times may lead to substantial savings.
* You can get tax-deductions and flexible repayment options with these loans.
* No requirement of guarantee-fee or co-signor.
Types of College Student Loans:
The college student loan can be categorized as subsidized or unsubsidized loans. Let us understand the difference between these two categories.
* Subsidized loans: Here, the Government will pay (remember, will pay, and not merely defer) the interest charged on the loan while the student is in school and also during grace and deferment period. But qualifying for a subsidized Stafford loan is a little more difficult. Here, the student must demonstrate financial need to become eligible for such a loan.
* Unsubsidized Loan: As the name suggests, student is the one who is solely responsible for all interest payment. However, this payment will be deferred until after graduation. These loans are easier to qualify for. Almost all students are eligible for the unsubsidized Stafford Student Loan, regardless of financial need.
*Repayment plan for College Student Loan: The usual repayment plan entails that repayment will begin six months after you leave college. The minimum monthly amount is $50. It goes without saying that the actual monthly payment will depend on the amount you have borrowed. A nice thing with these loans is that there is no prepayment penalty. Initial repayment periods are usually 10 years.
Always keep these points in mind.
No doubt, the financial aid process is somewhat complex. But keeping a few points in mind can make this aid process a lot simpler for you.
* Most families, who have been through this entire process of getting financial aid for college education, will tell you that they think they should have started the process sooner. Remember, scholarships will be snatched up very quickly and if you want to join the federal aid queue, you must be quick on your feet.
* The first step is to get your FAFSA submission ready. The early submission of FAFSA is an important step. Keep in mind, since the amount of federal aid for students, though substantial, is still limited. Therefore, it is awarded on a first-come, first-served basis.
* But dont submit an incomplete or incorrect FAFSA application in haste. If this incorrect application is returned to you, the correction process could well take weeks to complete. And after this lost time, you will find yourself much further back in the financial aid queue.
* Even when you are pretty sure of getting a College Student Loan, still save as much money as possible for you college education, as it makes a whole lot of financial sense. After all, even after being eligible for a student loan, you are expected to contribute some amount towards your college education. Since this is the case, it is always better if you can use your savings to raise this amount, instead of borrowing against credit cards or your home equity. These loans attract a considerably higher interest rate, and especially in case of home equity loan, if you somehow failed to repay in time, you may end up losing a lot more than you can afford.
Finally, the most basic point. Before getting a Stafford Loan, make sure you have properly checked on options such as scholarships, grants as well as work-study. These usually are the best options, costing you nothing because they are not to be repaid!! However, if you cannot exercise these options, then the low-cost Federal Stafford Loan is your best bet. Not only the rates for these loans among the most favorable, their repayment is also deferred until after graduation.
Next in line are the Federal Parent PLUS Loans, and then there are private student loans. A detailed discussion of all these loans, however, is beyond the scope of this article.
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