What
Students and Parents MUST Know about Student Loans
by: John Williams
A
student loan helps you get through college. Then you
come out into a high-paying career. It's a great
investment in your (or your sons/daughters) future.
Student
loans generally give you a good deal. You get
below-market interest rates, and you get a $2500 federal
tax credit on interest paid over any period of time
(previously first 60 months only)
It
doesn't matter if the student, or parent takes out the
loan; tax deduction remains the same.
* Did
you know the federal government has a $50 billion
student loan program ?
Not
surprisingly, the federal government provides the
largest percentage of student loans. Other student loans
may come direct from colleges, private lenders or state
governments.
One of
the key advantages to a federal guaranteed loan is
exactly that - it's guaranteed. That means you don't
need collateral. It also means the terms are kinder than
a typical lender might offer. Of course, your
educational program has to be approved by the
government.
Types of
student loans
*
Federal Stafford Loan - for undergraduate or graduate
students
A
popular and cost-effective source of a student loan.
Stafford loans provide low-interest, government
guaranteed funds.
Stafford
Loans come in two types, subsidized or unsubsidized.
Whether or not you're eligible for subsidized depends on
household income. The school ought to advise on this.
For
subsidized, the government covers the interest right up
to start of repayment i.e. they pay interest incurred
during the course, in deferment and during the grace
period before repayment begins. If you qualify for
subsidized, it's a great deal
For
unsubsidized, the student must pay all interest incurred
at all times, though they don't start repaying until
after grace period.
*
Federal PLUS Loan - for parents of undergraduates
Parent
Loan for Undergraduate Students (PLUS) allows parents to
take a loan on their Childs behalf. They can contribute
to their Childs future, and get a great low- interest
loan with continuing future tax relief.
PLUS
actually allows parents to borrow the total cost of
their child's education, minus any grants or other
financial aid awarded. All tuition fees, meals, books,
transport etc. can be included in the loan.
This
really is a great deal, and has no income or asset
requirements. Even poor credit history may be overcome.
Repayment is flexible, and can include zero payments for
up to 4 years.
Only one
drawback to the Federal Stafford and Federal Plus loan -
your school must be approved to participate in these
programs. If your school isn't approved, then you've got
some other options...
* Banks
Many
banks offer unsubsidized Stafford loans. You still get
the money, which you must have to attend college, but
repayment options are more limited. Some deals offer you
an interest rate reduction if you make payments on time.
* State
Loans
Most
states offer guaranteed student loans. Apply direct to
Banks, who'll administer the State program. It's usually
a more expensive way to borrow than Stafford.
*
College Board Extra Credit Loan
Administered by your college. Can be expensive, and best
used only in an emergency e.g. your aid is withdrawn.
* Other
Loan Sources
A number
of other sources may be worth trying if you get a
problem with your first choice lenders. Academic
Management Services affiliates with approx. 2000
schools. AMS pay your tuition fees if you repay them in
less than a year. College Resource Center also has loans
available.
If your
parent served in the military, then a military loan
should be investigated.
College
can be the experience of a lifetime. A child starts
college as a high school kid, and emerges a full grown
adult with high-earning potential…
But he
or she needs money to survive and thrive in college.
This article looked at the main sources of student loan
funding, and those sources should be ideal for most
students and their parents.
