In between tuition fees, room and boarding, books and personal expenses, going to college costs much more today than it did decades ago.
According to the report of “Trends in College Pricing 2017,” a four-year course in public college is now 213 per cent more expensive than thirty years ago. Today, you need to shell out around $9,970 for your academic career in a public institution, compared to the average $3,190 in the late 80s. Along with the rest of our expenditures, the cost of getting a degree is just one of those we have to bear with.
Thankfully, going to college doesn’t mean needing to have all these money upfront. Student loans are debts you can take to finance higher education. Many people regard student loans as “good debt” because they allow you to invest in a college education without having to pay all the fees upfront. Whether you’re a parent with a soon-to-be college kid, or a fresh high school graduate looking into what student loans you can take, you must know that you have a couple of options.
TYPES OF STUDENT LOANS
Generally speaking, student loans fall into one of these two categories: federal and private. Federal student loans are sponsored by the government, while third-party loans providers (credit unions, banks and other lenders) grant private student loans.
FEDERAL STUDENT LOANS
Under federal student loans, there are several more types you can choose from:
Stafford Loans (Subsidized)
The Direct Subsidized Stafford Loans refer to the government student loans granted to college students whose parent earn $50,000 a year and below. As these are subsidized loans, the student is free to use the loan interest-free during his academic career or when the loan is in deferment and during forbearance. During this time, it is the government that pays or should we say “subsidizes” the interest on the loan. Today, the subsidized Stafford loans are regarded as the cheapest source for educational financing, boasting of fixed, low-interest rate.
According to Student Loans Hero, the limits for subsidized student loans is lower than the unsubsidized version, allowing the student to take up to $5,500 per academic year. Additionally, the student is allowed to take the subsidized Stafford loans up to 150% of his degree program. If you take more years than you ought to finish your degree, you may not be eligible for the subsidies on those “extra” years.
Stafford Loans (Unsubsidized)
The Direct Unsubsidized Stafford Loans, on the other hand, is available to every student regardless of his or his family’s financial situation. But unlike the subsidized version which remains interest-free while the student is in school, the unsubsidized Stafford Loan accrues interest while the recipient is studying, and even during forbearance and deferment. The student has the option to delay paying the interest on the loan during this period, but those interests shall be topped onto the loan’s principal amount.
How much you borrow in unsubsidized student loans depends on a number of factors, such as your other financial aids. However, unlike the subsidized loans which require you to stay in school at least half of the time to be eligible, you can use the unsubsidized loans regardless of how many years it takes until you graduate.
Both types of federal Stafford loans are available for bachelor and post-graduate programs. For bachelor degrees, interest rates are at 4.45% APR; while post-graduate students availing unsubsidized student loans pay 6% APR.
How to Apply for Stafford Loans?
Applying for both types of Stafford loans begin with filling up the FAFSA (Free Application for Federal Student Aid) form available at www.fafsa.gov. You will then receive a Student Aid Report after a few days of filing your application, detailing how much financing you’re likely to receive. Review the offer and confirm acceptance with your school. You also need to submit a promissory note, along with other paperwork to be eligible for such loans.
Another form of federal student loans is the PLUS loans, which are also come with fixed and low interest. PLUS loans are available to graduate and post-graduate students, as well as to parents sending their kids to undergraduate school. Qualifying for PLUS loans do have certain conditions, such as being enrolled in school at least half of the time. Meanwhile, parents need to pass the credit check. But unlike subsidized loans, PLUS loans allow you access to financing without having to demonstrate financial need.
The main appeal for PLUS loans is that the student’s parents can pull out the entire loan amount, minus the fees, to sustain their kid’s college financial needs. PLUS loans, however, carry higher interest charges and origination fees than Stafford Loans. These loans have no grace periods and repayment commenced as soon as funds are released.
How to Apply for PLUS Loans?
First, you need to fill up the form at www.fafsa.gov and review the financial award report to see if PLUS loans are included. If it is, the parent needs to make sure that he doesn’t have any adverse credit history. Next, you need to determine how much PLUS loans you want to take for your child, submit the application then sign the master promissory note.
Federal Perkins Loans
The now-expired Federal Perkins Loans have expired last September 2017. But to give you a short overview of what it is and how it works, we will explain the Perkins Loans for you.
The Perkins loan is a federal loan in which you take out financing from the school itself, instead of the government. Although the loan is composed of funds from the government, your school still has a share. Payments for the loans are also made to the name of the school.
Federal Perkins loan has a limit. A bachelor student can take up to $5,500 of loans each year, while a post-graduate recipient can borrow up to $8,500 annually. The interest rates are also relatively low at 5%, but the loan is available only to students who can demonstrate financial need.
Perkins Loans is another excellent source of educational financing, but you have to check whether your school participates in such a program. How much you can obtain in Perkins Loans depend largely on your need and the available funds the school has. Generally, you need to start repaying the loan nine months after graduation.
Direct Consolidation Loans
If you have a couple of student loans, but don’t want to deal with multiple payments, interest rates and due dates, the direct consolidation loan is an excellent option. This type of student loan consolidates all your existing student debts into a single loan, so you only need to do single monthly payments, following one fixed interest rate.
Taking direct consolidation loans can help bring down your monthly payments, although the repayment period may be lengthened.
How to Apply for Direct Consolidation Loans?
If you wish to consolidate your existing federal student loans, you need to submit your application form and promissory note. The new interest rate is the weighted average of all the federal loans you wish you consolidate, and repayment typically begins 60 days after the disbursement.
PRIVATE STUDENT LOANS
Another way to finance higher education is taking private student loans. Unlike federal loans which are subsidized or sponsored by the government, private loans are often offered by banks and private lenders. The interest rate may be higher than most federal loans, and the qualifications are different.
Most private student loans lenders require the student or his parents to demonstrate good credit history. Getting a co-signer may also work if your credit score is less than appealing. However, the rates and terms of private student loans often depend on your credit standing. It is often advised to take advantage as much federal aid, grants and scholarships before considering private student loans. The latter doesn’t carry the protection that federal student loans have.
How to Apply for Private Student Loans?
The application process for private student loans often depends from one lender to the next. But generally, you can apply online and receive the decision shortly. The lender sends the funds to your school to cover your educational expenses. Depending on the agreed terms, you may start repaying the loan right away, or after graduation.
Getting yourself or your kid through college can be a tall order, especially when it came to the financial demands, but that’s what student aid programs, grants and other financing methods are for. You have a couple of options when it comes to student loans, and you may be able to take one or more at the same time.
However, just like any other type of debt, student loans need to be paid back and always with interest. You want to make sure that you understand the fine print and the consequences of taking these loans. You can graduate from college, but that also means you have to pay these students loans now, if not sooner or later. If you’re taking student loans today, make each payment count in the future.
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