Loans. Adults cannot live with them, yet most people are unable to live without borrowing money. Buying a new car requires a loan, except for the rare individual who can pay in cash, like Bill Gates; a homeowner will have to acquire a mortgage for the next 20-30 years; and, a post-secondary education often means taking out a loan, to pay for books, tuition and living expenses.

In some cases federal loans are available through the Veteran’s Administration for housing. Federal loans can help for disaster relief, or agricultural needs for farmers and ranchers. However, when discussing federal loan consolidation, most people immediately consider the unsubsidized and subsidized money used to finance a college education.

A college education is a costly venture, yet definitely worth the investment of time and money. However, the tuition and fees often discourage some potential students from trading in the spatula of a fast food restaurant, and picking up a textbook. A post-secondary degree program seems like an impossible dream, rather than an obtainable goal.

Nevertheless, after careful consideration, and a brief visit with a financial aid officer, unsubsidized and subsidized student loans are available for a two-year degree, a Bachelor’s, a Masters, or a Doctorate. Federal loans consolidation takes place AFTER an individual is done receiving a formal education. The loans are usually made available every year.

Because the cost of learning is beyond the average pocketbook, many students take advantage of both a subsidized and unsubsidized loan, with the plan to take advantage of federal loan consolidation after school. Once accepted for the federal loan program, students are offered the opportunity to accept, or reject, a student loan at the beginning of the school year. In many cases, both types of loans are presented, to give an individual the extra money needed to pay off expenses, and maybe have a little left to live on, without having to hold down a full-time job.

If only one loan is needed, opt to accept the subsidized version. Not only will the payment schedule not be instituted until six months after leaving school, but also the interest will not start accruing either. Although interest may seem like small potatoes, in the long-term, subsidized loans can save thousands in repayment dollars.

When more financial assistance is necessary, an unsubsidized student loan is also available, and the financial aid will later qualify for federal loan consolidation. However, for this particular avenue of financial assistance, the interest starts building immediately, even though repayment is still not required until after graduation.

So, imagine both loans were necessary to complete a degree program. Before the six-month grace period has expired, federal loan consolidation can be implemented, saving up to 54% in monthly payment amounts. How? Prior to consolidation, the length of the loan is ten years. If the loans are consolidated, the length of the loan can be extended by five-ten years, making the payments more affordable.

In addition, federal loan consolidation also reduces the ultimate interest rate. Thus, the two monthly payments combined will probably be less than repayment of one loan individually. For example, the unsubsidized loan payment may be around $200/per month. In addition, the subsidized loan is going to be another $200. Two separate bills, one big chuck of the monthly income. By implementing federal loan consolidation, the loan is repayable in 20 years, and the monthly amount is only 46% of the anticipated $400. Now, the payments are a manageable $184/per month.

One problem. Consider the following scenario: a student earns a two-year degree at a local community college to save some money. Then, he/she transfers to a university to complete a four-year program. A Master’s in a particular field is only offered at selected locations, so transferring is again necessary. Three different schools. Three different sets of lenders. No problem!

Federal loan consolidation will combine all the loans, pay off the necessary lenders, and leave only one bill, one lender, to repay. So, whether an individual goes to one university or four, federal loan consolidation will not only reduce the payment amount, but make repayment infinitely easier, in the long run.

The only drawback of federal loan consolidation, worth mentioning, is the reduced grace period. If a graduate decides consolidation is the right choice, the process must be completed before the six-month post-education period expires. Unfortunately, once the federal loan consolidation process has been completed, the repayment process begins. The borrower loses any remaining grace period.

However, since federal loan consolidation can save a former student from drowning under the weight of two, or more, loans, giving up a couple months of grace period is a small price to pay. Unless a graduate lands the perfect dream job right after the caps are tossed in the air, federal loan consolidation can be a lifesaver.

By: Erol Orderland

 

Students can go to college through the federal student loans that can help them pay until they graduate. There are many different types of such loans. The Stafford student loans are just one of them. This article will attempt to discuss the basics of this type of loan in order to give information on how it helps the students of this country.

A Stafford Loan is a loan that is offered to students who are enrolled in accredited colleges, universities, and institutions. The Congress established this in 1965 in order to extend financial aid to students who are in need to supplement their resources. As part of the Federal Family Education Loan Program FFELP, the Stafford loans expanded to cover 90% of $50 billion plus funding.

Almost everyone is eligible to get this loan. Back when it was signed in Congress, the definition for the recipients was not very clear and so the program rapidly expanded. There are two types, the subsidized and the unsubsidized.

For the subsidized, the Federal government pays for the interest charges of the loan during the entire period when the student is in school until the grace period of six months after he graduates. There are certain qualifications for the subsidized loan and one of these is the family income. The government uses an Expected Family Contribution (EFC) number to determine if a subsidized loan will be granted or not. 

Two out of three of this type of loan is granted to students who have parents with a total gross income of less than $50,000 annually. About 25 percent is extended to families with gross income of more than $50,000 but not more than $100,000. 10 percent is given to those with income that exceeds $100,000.

The other type of Stafford student loan is the unsubsidized. The interest charges for this loan accumulate until the loan is paid off fully. The loan can be borrowed from a bank or a credit union, or directly from the Department of Education. Interest rates change year after year but these rates are still very low compared to private loans being offered in the market. For the academic year 2008 to 2009, the unsubsidized rate is 6.8% while the subsidized rate is 6%.

For a student to be granted with the Stafford loan, he must be enrolled at least in a half-time period. To apply, he must accomplish and submit the FAFSA (Free Application for Federal Student Aid) form.  This loan is only given to US citizens or nationals, permanent residents, or eligible non-citizens. The student must also be enrolled in the accredited schools listed in the Federal Family Education Loan Program. 

The family income and financial need will determine if the applicant will be given subsidized or unsubsidized loans. The loan is payable in 25 to 30 years depending on what kind of Stafford student loans have been granted. There are also a lot of repayment options that the applicant can choose from.

 

By: Brian Link

These past weeks there has been talk in the higher education press about private lenders and state guarantee agencies either withdrawing from the government-subsidized student loan market or refusing to underwrite new loans. These financial institutions cite either a cash crunch or a credit crunch, or reductions in the federal interest subsidy as the reasons for pulling back on such loans.

These are all legitimate reasons for the private financial markets to back out. Student loans were never meant to be a profit center when they were first proposed by the federal government under President Eisenhower. The purposes of student loans are to make college affordable and accessible to anyone who is admitted to college and to help them establish good credit early in the working lives.

When I applied for my first student loan 30 years ago, I could borrow up to $2,500 and I didn’t need to pay an origination fee. Today, the maximum a college freshman can borrow under the subsidized loan program is $3,500; considering inflation it’s a lot less than I could have borrow 30 years ago and covers a much smaller share of the costs! The $2,500 I could borrow in 1978 would have covered more than half the cost of my freshman year at Rutgers. The $3,500 I could borrow today would cover less than a fifth of the freight-assuming I received the full amount after going through a means test!

The federal unsubsidized interest (unsubsidized meaning the borrower or their families pay the interest while the borrower is in school) loans were a creation of the Reagan Administration. They were initially a means of providing loans for graduate and professional school students who could not qualify for the maximum amounts for subsidized interest loans.

During the go-go Eighties, a graduate or professional student could borrow up to $5,000 a year from the subsidized interest loan program – but had to prove financial independence or go through a means test along with their parents. Then they had to turn to the unsubsidized loans – popularly known as PLUS loans to make up the difference. Back in those days, the subsidized loan and the unsubsidized loan together with some employment could pay almost the full freight.

That’s not the case today.

It’s easy to blame the colleges; their administrations make the tuition decisions, not the federal government. But they are just like other businesses that must deal with escalating health care costs (tenured college faculty are more senior level workforce than most government agencies and private corporations); fuel prices (larger schools own and operate as much housing as some medium and large-sized cities) and pensions.

There will need to be a major redesign of the student loan programs in the next presidential administration not only to reconsider outdated borrowing limits, but also the means tests and multiple government loan programs with their own set of regulations and bureaucracies. In an ideal society, students should not end their higher education owing more than their first year’s salary in their chosen field.

That’s a lofty ideal, but one worth reaching for.

By: Stuart Nachbar