Student Loans

The cost of a college education continues to rise. Many students have to rely on some sort of financial aid to cover tuition, fees and other living expenses. The majority of students can not fund their own education even with the help of scholarships and/or grants. Federal student loans are available and do not require repayment until six months after graduation or three months after a student has dropped to half-time or less than half-time status.

History
As part of his “Great Society” program, President Lyndon B. Johnson instituted The Higher Education Act of 1965

     …to strengthen the educational resources of our colleges and universities and to provide financial      assistance for students in postsecondary and higher education. (Pub. L. No. 89-329).

Low interest loans and scholarships were established due to this federal funding, which opened the college doors for many students and families in a lower or middle income range. It also supported smaller colleges and universities to obtain much needed resources and to develop programs. The Higher Education Act (HEA) goes through a revision approximately every seven years, generally making changes and adding programs if proposals have been passed.

Types of Loans
There are two different types of student loans: A Federal Stafford Loan and a Federal Perkins Loan.

Federal Stafford Loan A Stafford Loan can either be subsidized or unsubsidized.

Subsidized loans are interest free, (interest paid by the government) and students must prove financial need to qualify.

Unsubsidized are loans that include interest, which can be paid while the student is in school. Many students opt to not make the interest payment, in which case it is added to the loan balance.

Regardless of financial circumstances, all students are eligible for an unsubsidized Stafford Loan.

Federal Perkins Loan A Perkins Loan is a campus-based, subsidized loan and is granted to students with exceptional financial need, generally families of lower economic status. The interest rate is a low 5% and has a 10-year repayment period. It is the best student loan available.

Other Types of Loans To add extra funds to what a federal student loan may not cover, alternative loans are available.

• Parent PLUS Loans: Parent Loan for Undergraduate Student (but referred to today as just Parent PLUS) is applied for by the parents, who are responsible for repayment. Repayment usually begins 60 days after the disbursement of funds. Deferment may be an option depending on the lender.
• Private Loans: A parent can go through a private lender to supplement a student’s college education. Qualification generally depends upon credit scores. Flexible repayment plans are available.

Free Application for Federal Student Aid (FAFSA)

You will need to apply for student aid every year by way of the FAFSA. Qualifications for aid may change from year to year. Be sure to be aware of the deadlines for submission as well as having your current tax information readily available.

Student Loan Consolidation When the six month grace period ends, repayment of your student loans begins. To many, a student loan consolidation is the way to go. It combines all of your student loans into to one new loan with one (usually lower) monthly bill and lower interest rate. Your previous loans are paid off and you continue paying on your loan to the one lender rather than multiple creditors.

Due to the lower monthly payment and lower interest rate, the length of your loan has probably increased and well as the total balance. Review and research several options to find the best program for you. Once you consolidate your student loans, keep yourself on track and budget well, so you do not over spend and end up defaulting on this loan. The consequences are very tough and quite damaging to your financial future.

Good Debt, As Long As…

Although financing your college education by way of student loans is a good investment, and therefore considered “good” debt, it is very important to repay this loan. Non-repayment, or a default, of the loan may cause serious future problems.

Student loan lenders aggressively lobbied to amend the HEA in 1997. The amendments allowed severe consequences to fall on borrowers who did not repay their student loans, such as wage and tax garnishment, negative reporting to the credit bureaus, involving a collection agency and tacking on those fees, no refinancing options, filing a lawsuit (and charging you the lawyer’s fees) and no bankruptcy protection, just to name a few.

A student loan enters default status after about 270 days (approx. 9 months) of no payments. This can easily be avoided by making arrangements with your lenders and filling out the applications for a deferment (a postponement) or a forbearance (a postponement for a longer period of time but only granted under extreme financial hardship).

You will not be able to qualify for either of these if you are already in default.

Disclaimer:   Debt Consolidation Deals, Inc. does not provide legal, investment or Tax advice. If a client needs legal services or legal expertise, they must seek the advice of a licensed attorney. Individual program results may vary.