22 Oct Are Student Loans Becoming Necessary?
When it comes to getting a college education most people can agree that the costs can be staggering at best. Even the least expensive colleges in the nation can add up over a four or five year period of time creating crippling debt for those who do not qualify for some of the better grant programs of substantial scholarships.
The problem lies in the fact that the parents of most traditional college students make too much money to qualify for the free financial aid that is needs based and very few qualify for the limited number of scholarships that are available to students based on merit. Even among those that qualify competition and fierce and there are no guarantees. Enter the student loan. There are all kinds of student loans and unfortunately with rising costs associated with college attendance and the growing necessity of a college degree for success in this country it is becoming more and more difficult to pay the price that is associated with higher education.
There are three types of loans that are commonly found for college students. They include federal student loans, federal plus loans, and private student loans. Each type of loan has advantages and disadvantages that are unique to that particular loan. Below I will give a little information about each of the loan types and whom they may benefit.
Student loans. There are three different types of student loans: subsidized, unsubsidized, and Perkins loans.
Subsidized student loans are loans in which the interest is deferred until graduation or you cease to be a qualifying student. What this means is that while you are responsible for repaying the loan upon graduation the interest on these loans does not begin to accrue until your begin repayment 6 months after graduation or your cease to be at least a half time student of the university. You must qualify based on your income in order to receive a subsidized student loan. While the needs requirements for these loans isn’t as grave as those required in order to receive a Perkins loan you must still qualify.
Unsubsidized student loans do not require qualification on a needs basis. You must be a student and enrolled at least half time in order to receive an unsubsidized student loan. The good news however for those who do not qualify based on needs for other student loan options is that this type of loan is available to all qualifying students regardless of need. The interest on these loans however begins to accrue immediately, which means they can really add up over time.
- Perkins loans are only available to students who display exceptional financial need. These loans are available at a 5% interest rate and are available to both graduate and undergraduate students. Perkins loans are extended through the university you attend and will be repaid to the university unlike the other types of student loans, which are repaid to the lending agency.
PLUS loans are loans that are taken out by the parents of students who need the funds in order to cover educational expenses. The maximum amount that can be borrowed is the cost of attendance minus any financial aid awards the student has already received. The repayment on these loans begins 60 days after the loan is dispersed and the repayment period can be up to 10 years.
In order to cover the costs involved in education that go above and beyond what the government recognizes as acceptable college related expenses you can opt to go the route of private student loans rather than relying solely upon federal financial aid for your student loan source. These loans require that you qualify in order to receive them based on your credit rather than your need and must be used for educational purposes only. With these particular loans you really need to make sure you read all the fine print as different companies offer different conditions and different perks. You should really take the time and compare prices and options before taking out a private student loan and this should be done only as a last resort.
Student loans for many can be the difference in attending college and getting the education you are hoping for and not being able to pay the high costs that go along with higher education. For this reason you should treat them with respect and not take them lightly.
We are in the business of helping families through the major life transition of sending their children to college. For many, it will be the most expensive time of their lives and, if not handled properly, could cost them their retirement. If you or someone you know needs the help and guidance of a trained financial professional, don’t hesitate to contact your local College Planning Relief® Licensee. Remember, you shouldn’t have to choose between your child’s college and your retirement.