The Prospects Of Student Loans

Knowing how to get the best deal on a student loan is ultra important since loans account for 75 percent of all financial aid. Grants only make up for 25 percent. However, student loans are widely misunderstood by both the students and by the parents.

As with most purchasing decisions, you need to shop around among the lenders that are available to you. The best place to start looking is in the state where you live or where your child will be attending school.

College tuition is increasing at an average rate of 7 percent annually. This is well over the rate of inflation and students are borrowing money to pay for their education more and more through student loans. If you think about it, getting at least $50,000 to pay for college (and often times much more) is no easy task for someone who is only 18 to 21 years old.

There are a few students that will have saved or will be lucky enough to have parents who have saved enough for their children’s college education. Also, many students do work their way through college, and hey, why to go! That’s quite an accomplishment.

Where To Start Looking For That Loan

It is best to go straight to the federal loans, per Robert Shireman, who is the director of the Project on Student Debt. Not only do new federal loans have a fixed interest rate, easy to apply for, have flexible repayment terms and often have a government subsidy for part of the interest.

Next go shopping for a Perkins loan, which offers students up to $4,000 a year at a fixed 5% interest rate. It is considered next among equals in the federal loan lineup. The students can defer repayment for nine months after leaving school and spread the payments out over ten years.

Also, graduates who work as teachers or social workers in low-income neighborhoods or who fill other needed jobs may qualify for loan forgiveness. The federal fund that supplies the loans is not being refilled to the full amount as in the past, so if you are lucky enough to be offered a Perkins loan waste no time in accepting it.

After a Perkins loan, it is recommended to apply for a Stafford loan, which is also among the federal financial aid packages. Students may borrow up to $3,500 a year as freshmen, $4,500 as sophomores, and $5,500 as junior and seniors. If your family qualifies for need-based aid, the federal government will pay the interest on the Stafford loan until it comes due.

Students can defer repayment on this loan until six months after graduation and extend repayment from the standard ten years to as many as 25 years and this would lower your monthly payments. However, this would also add to the overall cost of the loan due to the fact that the interest would keep growing.

Something I find rather sad, is that even after having been accepted for both a Stafford loan and a Perkins loan combined, this still will not be enough money to get you through school alone at a private university.

Let’s move on to the next available loan on the list. To cover the gap, after that look to a Plus loan, which is a Parent loan for students. A basic credit check to get this loan must be passed.

Once approved, you can borrow up to the total cost of attendance minus any other financial aid although, the standard Plus loan does require you to start repaying within 60 days of payment. There are some lenders that will allow you do defer repayment until you have left school.

Some Positive Tidbits for Loans

When you start repaying the money, some lenders will give you a break on the interest rate of about a quarter-point if you have the funds automatically withdrawn from your bank account.

If your payments are made on time for the first 24 months, some lenders will forgive origination fees on your loan in excess of $250.

Some lenders will knock two percentages of points off your interest rate for the remaining term of the loan if you pay on time for the first 48 months.

Whatever type of loan you apply for or are accepted for ask them if there are any unadvertised specials by taking out the loan with the lender. Mention the items above; often students are rewarded for a prompt repayment record.