Many college students today hit a hurdle before they even start when it comes to finding the funds necessary for college because they have already managed to run up a poor credit history. Fortunately however there are aid and loan packages available today which look principally at need and ignore your credit history and so this is where you will need to start your search for funding.
One of the oldest sources of funding and one which is chiefly available on the basis of economic need is the Pell grant. As long as the student and his family are considered to be a low-income family a Pell grant is more or less automatic and is made on the basis of the submission of supporting documentation.
The student will be required to provide proof of the cost of his intended course (including tuition fees and other qualifying costs) and will also need to provide details of the family’s income from which an EFC (Expected Family Contribution) number will be calculated. On this basis a decision will be made and the grant made or refused.
As the name suggests, a Pell grant is a ‘gift’ and not a loan and it does not have to be repaid. Pell grants are currently for a maximum of $4,731 a year (depending on your assessed financial need) and, while this will not normally cover the full cost of attending college, it can go a long way towards helping. However, most students will need to seek loan funding in addition to a Pell grant and the best form of loan funding initially are Stafford loans.
There are two different types of Stafford loan and the first is a subsidized Stafford loan on which the government pays any interest charges while you are studying full-time and for up to six months after graduation. The second type of Stafford loan is an unsubsidized Stafford loan on which you will be responsible for making all interest payments.
Unsubsidized Stafford loans need to be considered very carefully because, although you will be responsible for making interest payments, you will not be required to do so while you are in full-time education and for up to six months after graduation. However, during this period interest will still be applied to any loan and will simply be added to the outstanding amount of the loan. This means that during a three or four year college course your loan debt can grow substantially and reach a very significant sum by the time you do start paying it off.
Naturally, most students would prefer to have an unsubsidized Stafford loan but loans are disbursed according to the funds available and on the basis of need so that only a minority of students will qualify for a subsidized loan. The good news however is that most students will qualify for an unsubsidized loan and, despite their drawbacks, these still represent one of the best forms of college loan funding available today.
There are of course other forms of grant and loan funding available (and scholarships) and you need to shop around to see just what is available and best suits your circumstances. However for students from low-income families Pell grants and Stafford loans are invariably the best routes to follow.
By: Donald Saunders
Many recent graduates are finding it harder and harder to stretch new paychecks. Graduation may be a milestone in itself, but alongside a college diploma are the endless monthly bills. Living on one’s own has never been easy. Private student loan consolidation is often used to lower monthly payments and improve credit ratings.
Accumulating Debts
Often, the accumulation of other debts is to blame for such a sorry state of affairs after graduation. Take the case of 25-year-old Tamika Gambrel, who has a $60,000 a year job but still finds it difficult to make ends meet. She has to pay $840 for the apartment, $280 for the car note and a hefty $24,000 credit card debt that came from her college days. She speaks frankly about her debts:
“After four years, I walked away owing only $28,000 in loans. Considering that tuition and room and board alone at Colby was $35,000 a year, I think I did alright.”
Not everyone could put up such a brave face in the face of debt. Some just decide to file for bankruptcy, instead of getting a private student loan consolidation.
Fees Not Letting Up
According to the College Board:
“The cost of attending a public, four-year college or university in the 2007-08 school year–including tuition, fees, and room and board–was $12,796, up 35% over the past five years; for private schools, the cost was a hefty $30,367.”
These figures are by no means fixed. As we all know, tuition fees and other related fees increase and decrease depending on inflation and other economic forces. But people still want to borrow money for their college days, because indeed it’s a chance to get a better shot at life. Private student loan consolidation becomes a chance to get better rates in the end.
Know Your Debts First
To “retire” your student loans faster, you have to know your loans. Log on to www.nslds.ed.gov (National Student Loan System) to read about the specific details of different student loans. Check the status of your loans, as well as the variable interest rates and the principal. Make sure too that you obtain the required personal identification password (PIN). This can be obtained from the Department of Education. Log on to www.pin.ed.gov for more details.
Another important thing to remember is that federal loans and private loans are different. Federal loans have caps on their interest rates while private loans do not. Often, private loans are costlier. And another thing: federal loans and private loans cannot be consolidated by one large loan. They must be consolidated separately. And again, federally subsidized loans have the government backing it up (Uncle Sam pays the interest rates while you’re in school).
Make sure that you only go to attractive private student loan consolidation deals. The case of Gambrel was actually good: she had been able to get consolidation at a 2.87% interest rate. Gambrel acknowledges: “I got very lucky. At the time I graduated, jobs weren’t plentiful, but student loan consolidation programs were very, very attractive.” This just goes to show that careful financial planning can lead to beneficial results.
By: W. Darren -
A Student Finance Corpration is an organization which handles lending to students for educational purposes and similar or related matters. Normally the loan would cover tuition fees and other associated expenses like lab fee, living expenses, money for books, etc.
Who can get this loan?
Most student loans come in a variety of forms and the eligibility for them varies. The two broad types are federal and private. There are various types of loans for undergraduates, graduate and degree courses. The amounts depend on one’s financial standing, grades, course for which application is being made.
You’ll find that the Student Finance Corpration has two broad umbrellas under which it provides loans – Federal and private loans. Federal loans are provided under the Federal Family Education Loan Program and are guaranteed by the government. Among Federal Loans Stafford loans are the most common ones and are subsidized and otherwise. Perkins Loans is another Federal Loan which is more desirable because of the terms on which it is available. However, each campus is only allotted with a limited amount of Perkins loans and it’s normally allocated to students with the greatest financial needs.
On private loans. the persons financial standing play a much more crucial role in determining the loan amount than the financial needs and they are based on your credit ratings etc.
OK – How do I get the loan?
Accordingly, the student finance corprations disburse the loan directly to the schools normally and the schools after charging for their tuition etc. will pass on whatever remains as a balance to you in the form of a check.
Do I have to pay interest?
Mostly this depends on whether you have a subsidized or unsubsidized loan. A subsidized loan is one where the government pays the interest on the loan while you are attending school and is given on a need basis. The interest rate is generally floating however, the popular Stafford loan program does not exceed 8.25% and it’s currently at 5.3%.
Interest rates for the Perkins loan is just 5% whereas PLUS – a loan which is yet again another Federal loan is currently at 6.1%. (at time of writing)
Interest rates for the private loans depends on your credit ratings and usually is between 1 – 7% of the Prime Interest Rate.
You should keep in mind that while the ‘not for profit organizations’ do not charge any fee, other organizations (apart from charging interest) may also charge a fee which can again be around 4% of the loan.
In most cases the interest starts accumulating as soon as the loan is disbursed so even when you are not repaying the loan you are being charged interest which you’ll have to pay back later.
How do I repay the loan?
After finishing your course there is normally a six month grace period after which you will have to commence repayment of the loan. In the case of a subsidized loan there will be no interest in this grace period as well. Normally the repayment period will not exceed 10% and in the case of some loans like the Perkins loan, you’ll normally be asked to pay the school directly.
Here again there are various ways in which the student finance corpration can ask you to repay the loan. There can be fixed payments which mean that you will have to pay the same amount each consecutive month until the end of the loan. Or, there could be a repayment scheme which is based on your gross monthly income.
Then there are two tiered and four tiered repayment options which basically involve lesser outgoings at first and then gradually the payment is increased.
If you have taken multiple loans then there is an option for consolidation of these loans as well. What this basically means is that all your loans will be clubbed together by the corporation and the longest term will be taken with the interest rate as the weighted interest rate of all your loans.
When you pay the installment you save tax!
The amount that you repay is allowed as a deduction for tax purposes and the maximum than can be claimed is $2500 over the life of the loan repayment.
By: Bill Darken
