Beginning At The Top For Loans

The executive director of the Project on Student Debt, Robert Shireman, was interviewed regarding the best strategy for students to use for financial-aid decisions regarding higher education. We will review his comments and advice regarding the Stafford Student Loan and others.

Go with the federal loans first, not only do federal loans carry a fixed interest rate, but they also are easy to apply for and offer flexible repayment terms and, in some cases, a government subsidy for part of the interest.

As with other loans that are used for higher education, you can deduct interest payments of up to $2,500 per year if single.

The number one government loan to aim for is the Perkins Loan. It offers students up to $4,000 a year at a fixed 5 percent rate. The feds pick up the tab on the interest until the loan comes due. Students can defer repayment for nine months after leaving school and spread the payments over ten years.

You don’t have to shop for a lender to connect with a Perkins. Schools distribute dollars themselves. These days, they dole them out sparingly.

The federal fund that supplies the loans isn’t being replenished to the full amount. Students who are lucky enough to be offered a Perkins Loan should waste no time accepting it.

Where The Stafford Loan Falls In Place Of Loans

The next loan you should you want to go with is the Stafford Loan. This loan is available to any student who applies for federal financial aid; it carries a fixed rate of 6.8 percent, compared with the recent prime rate of 8.25 percent.

Students may borrow up to $3,500 a year as freshmen, $4,500 as sophomores, and $5,500 as juniors and seniors. If your family qualifies for need-based aid, the federal government will pay the interest on the Stafford Loan until it becomes due.

Otherwise, interest starts building on day one. Students can defer repayment until six months after graduations and extend repayment from the standard ten years to as many as 25, lowering the monthly amount (but adding to the overall cost of the loan).

Uncle Sam makes for a lenient lender, as long as you don’t duck out on your obligation altogether. Borrowers who ask for forbearance can postpone payments for up to a year at a time and defer them if they return to school.

Stafford Loans offer subsidized and unsubsidized loans. What is terrific about a Stafford Loan financial aid package is you may be eligible for either one or a combination of both. The big difference between the two is when the interest begins to accrue.

The Plus Loan (Parent Loan for Undergraduate Students) follows the Perkins and Stafford Loans from the government. After this you would have to look into private loans, which carry variable rates and tougher terms.

The government loans are by far the best if you are able to obtain one. You are able to combine a Stafford Loan with other available loans and they work with you in the installment, enrollment and repayment areas.

There Are Two Ways Of Thinking Here.

More than anything else, you need to organize your spending habits. Study the terms of your loans, and budget your income and expenses. Getting a good handle on this process will pay off tremendously in letting you worry about the bigger things.

The higher your student loan balance, probably the greater the urge you are going to feel to unshackle yourself and breathe a little freer. Then you must decide if you should just pay off your student loans as quickly as you can.

Some students decide to take the smallest loan and double the payments and pay it off first. Now remember, this loan has the lowest interest rate. Thus, moving on to the second lowest loan and then moving on to the third debt making those payments and also the interest payments.

Now this is called using the traditional debt-snowball method and focusing on paying off the smallest debt first while making minimum payments on the rest.

The second way is called the highest-interest method by focusing on paying off the highest interest debt first while making minimum payments on the smaller loans next.

Here the extra payments would be made each month and applied to the highest interest debt and would have this debt paid off first.

The second debt would receive the payments from the first loan and thus be paid off very fast. Therefore, when the third loan appears there would be money available from the two previous loans to pay it off quickly. And by doing it this way the higher interest has been paid off first, the second next, and so on. Thus, this system would save you the most.

Other Options To Tackle Before Paying Off Student Loans.

If you have credit cards and other high interest debt you then should try to eliminate them before you decide to tackle your student loan debt. Once these higher interest loans are gone, you can then concentrate on your student loans. Also, what can be a good decision is to pay off your car before you accelerate your student loan payoff.

Any loans that you presently have with higher interest rates than your student loans should be considered to be paid off first. Then take that money and apply to the next loan that you have with the following highest interest rate.

Student loans are a necessity for most students, but like any loan, they should only be

used as a last resort. When it comes time to pay them back, you should concentrate on other high interest debt first. The interest rates are usually low, so they are not as important as other debt.

Try To Minimize Student Loans.

The other thought that should be mentioned here is if you have more than one loan, you may consider consolidating them. This could allow you to increase the term of the loan and thereby lower your monthly payments.

Student loans in the end are more of an annoyance than anything else. At first, they really make money tight and they impact ones lifestyle. However, after a couple of years, they just become an annoyance.

With a little determination and planning you can pay them off way ahead of schedule. It just takes discipline and patience. And remember the less you borrow the less you will have hanging over your head, along with the interest rate during the length of the loan.