Student Loans: Before You Borrow ....
Posted 8/9/2013 12:05:00 PM

The Washington Post reports students heading back to college this fall will save thousands in interest charges on their loans after they graduate once President Barack Obama signs into law a rare bipartisan compromise. The president is scheduled to sign the deal today at the White House, ending negotiations to restore lower interest rates before millions of college students move back on campus. About 11 million students this year are expected to have lower interest rates, saving the average undergraduate $1,500 on interest charges on this year’s loans.

That’s a good thing. After all, with rising education costs every student needs as much help as possible to achieve higher education. We know that higher education closes the poverty gap and provides better opportunities for our youth to have productive futures. Yes, there are reports more people living at home longer and college graduates not landing the opportunity they thought they’d have when they first set foot on campus. Yet, in the end, higher education is still a must to even enter a career at entry-level.

Pell grants, scholarships and work study assist a student achieving their academic goals without having to overload on loans. While some parents can assist or even pay full tuition – which is a blessing – it certainly is not the norm! No one wants to graduate with debt but if you need a loan to go to school, it is what it is. But not all student loans are created equal. There are several different types of federal student loans: Direct Subsidized and Direct Unsubsidized Loans; Direct PLUS Loans; and Federal Perkins Loans. Your financial aid package will show what loan(s) you’re eligible for. You may qualify for private student loans, but those can be more expensive than federal ones - possibly without fixed interest rates.

Lynette Khalfani-Cox, known as ‘The Money Coach’, states you need to understand the differences between private student loans and federal student loans. Getting informed can help both parents and students make the most informed decisions about financing college education.  Peep what she has to say in the article, “Key Differences Between Federal and Private Student Loans”, from Askthemoneycoach.com:

Repayment requirements – federal student loans don’t need to be paid until six months after you graduate, leave school, or change your enrollment status. Private student loans typically have to be repaid while you are still in school.

Interest rates – interest rates are fixed on federal student loans are usually much lower than private student loan rates. Also, some federal loans feature subsidized loans, where the government pays the interest on the loan while you’re in school. Private student loans are not subsidized so you are responsible for paying all the interest on the loan.

Credit checks – you won’t need a credit check for a federal loan, but private student loans will require you to have a good credit score and clean credit report.

Cosigner – federal student loans typically don’t require a cosigner; most private student loans do have this requirement.

Tax advantages – interest on federal student loans may be tax-deductible; interest on private loans typically is not tax-deductible.

Consolidation options – federal student loans can be consolidated into a Direct Consolidation Loan; you don’t have this option with private loans.

Repayment options – if you end up having struggling to make your loan payments on a federal loan, you may be able to reduce your monthly payment or postpone loan payments temporarily. Most private lenders don’t offer as many types of loan deferment or forbearance option, so these loans are less flexible in terms of repayment terms.

Prepayment penalty fees – federal loans don’t impose a penalty fee for paying off the loan before the loan term. Private loans can impose prepayment penalty fees, so be sure to review the terms carefully.

Loan forgiveness – if you work in public service – say, you are a police officer, social worker or a nurse – you may be eligible to have a portion of your federal loans forgiven. Lenders typically don’t offer any type of loan forgiveness program for private loans.

Loan assistance – you can get free help for federal loans by calling 1-800-4-FED-AID and review information on the U.S. Department of Education website. Recently, the federal government announced plans to oversee private lenders. As part of that effort, there will be an advocate for borrowers with private loans. To reach this advocate, you will need to contact the Consumer Financial Protection Bureau’s private student loan ombudsman.

Don’t let lack of money affect your future earning potential by not seeking higher education. Find the money method that works best for you and your current situation. And it’s not too late to get scholarships after you start your college years! Keep your grades up, perform community service, assess your gifts and talents then still pursue scholarships or grants after you begin your college education. Be informed about what’s available. The landscape has changed in the academic world; it takes research and commitment to stay knowledgeable and up-to-date on ways to pay for your education.

 

 

 

Posted By: Julee Jonez  

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