Student Loans: Useful Guide to Students and Parents

Student Loans help students cover their education fees.

There is no doubt that education loans whether federal student loans or private student loans have proved to be good sources of finance for students who don’t have money to sponsor themselves in schools. Under normal circumstances, payment for tuition fees and other related expenses should not be a headache to any student. It should be the responsibility of the parents to cater for their chi totally responsible for their education, hence the need for education loans. Why will students be responsible for his or her education? Well, this is the question any student that is on the favourable side of the coin may ask.

Why Student Loans?

Students may need to pay for their education through student loans for any of the reasons stated below:

Parents are deceased: This is one of the tragedies of life. Some students lost their parents when they were still kids leaving no one that can take care of their education. A member of the family may help foot the bills in the elementary levels. But the more a student grows and gets promoted to higher level of education, the higher the school expenses become. Such relation may not be able to take care of the College or University fees. If the student involved is determined in furthering his education, he may be left with no option other than to apply for education loans.

Parents are incapacitated: re incapacitated: There are people who are though alive but incapacitated. This can be due to illness or an accident. Instead of parents taking care of their children, reverse becomes the case. The burden of taking care of incapacitated person is enough not to talk about going through the rigours of going through college or university education. When parents cannot provide, what else will such student do? The next option is to apply for student loans.

Read Also: Student Credit Card: Basic Requirements and Features

Parents are jobless or earning low income: When a take home package is not enough to take parent home, adding educational expenses to their main expenses may not be possible. It is either that the student will apply for education loans directly by himself or if the parents are so caring, they may apply for student loans for their children.

If you are reading this article and you fall into any of these categories, I actually share your feelings. Whatever the situation may be, I want you to know that you are not at the end of the road. Many people have gone through the same situation and become great. If your desire is to further your education, all hope are not lost. As mentioned above, one of the ways people in any of these categories are able to go to school is through student loans. Possibly, you are actually considering applying for education loans. Before you do that, I want you to complete the reading of this article. Student loans are actually helpful but it can become a burden in the future. I don’t want you to misunderstand me. Education loans can be seen as investment which will later pay for itself in the future.

How to minimize student loans

Before you start applying for student loans, it is better you understand that there are risks and consequences attached. The reality is that, a lot of students find it difficult repaying their education loans after graduation. Some are not able to secure job immediately while some manage to get a job that doesn’t pay well enough thereby making it difficult for them to repay their loans. That is why America is having over $1 trillion stuck in student loans today while UK is having over £100 billion student debts in its economy. Therefore, I don’t want you to be over-optimistic that you will get a job that will pay you mouth watering salary after you graduate. You need to ask yourself how you will pay off your student loan supposing you can’t get job immediately. It is better you don’t expose yourself to much risks. You can achieve this by ensuring that you reduce any student loan you are taking to the barest minimum. How can you achieve this? This is the reason for this article.

You can reduce your education loans by taking the following steps:

Take a part time job: Do you know that you can be working while at school? There are many part time and flexible jobs that allow you enough freedom to school while working. Examples are freelance jobs and online businesses. Working part time may not provide you all the money you need for your education; it will definitely reduce the amount of student loan you will need to take. No matter how generous and flexible student loans may be, loan is still loan. You will need to repay. Working part time can help you reduce the student loan you will need by half or more. Even if it requires that you take an extra semester or two, it is worth it.

Find less expensive institution: Success in life is more of your personal commitment. You don’t need to go to the most expensive institution before you succeed in life. The higher the school fees, the more education loans you will need to borrow. There is nothing bad in going to an expensive institution if you have the means. But if your main source of financing your education is through student loans, it is advisable that you cut your coat according to your cloth. Cheap institution does not actually mean low quality. Some of the most expensive institutions are leveraging on the achievements and attainments of their past students. For new institutions of the same quality and standard whose majority of their students are still new, they may need to charge low fees in order to attract students.

Work in organization that sponsors their employees’ education: There are organizations that pay for their employees’ education. You can seek for employment in such organizations. This is a good way to avoid or reduce student loans for your education. Although you may need work for certain number of years before you qualify for this, it is worth waiting for. Also, some organization may require that you sign a bond that you will work for them for certain number of years before you can leave for another organization. The truth is that, they will be making investment in you and they need to enjoy the benefits too.

Apply for scholarship and grants. It is not just about education loans. Some organizations and even governments do give scholarship and grants to brilliant students. The good thing about grants and scholarship in contrary to student loans is that you don’t need to repay whatever amount they offer you. It is totally free. Search internet to find out different grants and scholarships that are available in your area. They are usually offered based on merit in as much you satisfy their requirements.

Be frugal: For students that depend on student loans to finance their education, you may need to cut down on certain expenses. I remember the words of my parents to me when I gained admission into tertiary institution. They said to me; “remember the son of whom you are”. Those words guided me in most of the decisions I made in school. The fact that my colleagues were doing certain things did not mean I should do same. At school, you will meet different kinds of students from different backgrounds. Some students are super rich and can afford anything. But for students that live on education loans, it will be like building castle in the air if they try to live big like their counterpart affluent students. If an expense if not necessary or important, you can do yourself good by avoiding it. The fact that you cannot afford some things today does not mean you will not be able to afford them tomorrow. You just need to make the sacrifice. People may not understand you but you know why you are making the sacrifice. As part of being frugal, you can choose to buy used textbooks instead of new ones. What is important to you is the content. Used textbooks abound online. Also, if you maintain the books very well, you can as well sell them after you are through with them. You can earn extra income through this.

Pay in Instalments: When you consider the tuition fee for the whole session, the amount can be intimidating and not affordable to many students. For this reason, student may seek for education loans. But there could be a better option to this. Why can’t you ask if you can be allowed to pay your school fees on instalments. If you are granted this opportunity, you may discover that there will not be any need for student loans.

Seek supports: A closed mouth is a close destiny. There is nothing bad if you discuss your predicaments with people you trust. These people can be your relations, friends and other students. As mentioned, some students are as rich as working class. Some of them can also be philanthropist in nature. Even though they may not be able to pay your tuition fees, they can help you pay some educational expenses. Some may even be willing to share their apartment with you. Therefore, before you amass student loans, ensure that you have talked with people you believe can be of assistance.

Apply Online: There are some credible websites where you can apply for student loans online. There are certain advantages you can derive through this medium. For example, with just one application, you will have access to multiple lenders who will be competing to offer you student loans at good rates. Getting student loan at a good rate can make a lot of difference. In most cases, it is the accumulation of interest on the loan that makes such loan becomes burdensome. This means that you don’t need to fill multiple application forms. In addition, you can enjoy supports.

Refinance your Student Loans: Possibly you have already borrowed too much money that is becoming a burden for you to repay. Well, all hope is not lost. You can reduce interest on your student loan debts by refinancing the debts. You can refinance both your federal and private student loans with banks or credit unions. But some lending institutions will not refinance your student loans while you are still at school. Student loan refinance will only work for you if you have improved your credit score significantly which may qualify you for lower interest interest rate. If the interest rate on your loans was very high by the time you took it, you can take advantage of lower fixed interest rate and lock it up.This will reduce the total amount your need to pay in the long run. Consolidating your student loans through refinancing will also help streamline your monthly payments into a single payment thereby limiting the possibility of late or missed payments which usually come with penalties.

Make automatic payments: You may be able to save some amounts on interest payments if you enrol in automatic payments. Many loan servicers encourage this by offering reduced interest rates to those who that enrol in this. Of course, this may not reduce your principal, you will be able to cut down your interest payments. Besides the discount you can enjoy, automatic payments make life easier as you don’t need to remember your loan repayment dates. Therefore, you can easily avoid late payments which may attract additional fee. Late payments also affect your credit. However, if you are enrolling in automatic payments, you should ensure that you always have sufficient amount in your account that will cover your monthly payments. Otherwise, your payment may be rejected and this will do more harm.

Apply for Federal Student Loans: Applying for federal student loans may not reduce the amount of student loans you may need for your education. However, federal student loans rates are the cheapest and their terms can be more friendly. The requirements for qualification for federal student loans are not that difficult. It will delight you to know that you can even qualify for certain government student loans without carrying out your credit check or need to have a particular level of your income. So for people that are looking for student loans without cosigner, federal student loans will be your perfect match. In some situations, you can also enjoy student loans forgiveness. If you enjoy student loans forgiveness, the unpaid loan balance  becomes more or less government grants as you will not need to repay the loan. But I will tell you not to rely on loan forgiveness as you can only be granted if you meet some eligibility criteria. You can find more information about your loan servicer. Nonetheless, before you apply for education loans from private organizations, you should try applying for federal student loans. If all attempts to get federal student loans prove abortive, you can then try other sources. But it is better to start with federal student loans. Government may not be too generous in giving college loans as they usually put cap on the maximum amount you can borrow. On the other hand, I see this very advantageous. This practice will not allow students to borrow more than they actually need. With federal student loans, you can enjoy certain protection such as forbearance, deferment, grace period and income-based repayment plan. These options are not available under private student loans. Unfortunately, not all students are aware of this fact.

How to Apply for Federal Student Loans

For students who may be interested in applying for federal student loans, the question that may be going on in your heart is, how do you apply for the loan? Well, I will just give you a summary of what it entails. To apply for federal student loans, you just need to contact the financial aid office of your college and let them know that you will like to apply for the loan. You will need to complete and submit FAFSA form. What is FAFSA? FAFSA stands for Free Application for Federal Students Aids. You need FAFSA form to apply for federal, state and college-sponsored financial aids. This form is free. So, if anyone is trying to make you pay for the form, you should recognize that such person may be a scammer who want to take advantage of your ignorance. There are other FAFSA filing options. You can visit FAFSA website and complete the form online. This will require that you enter FAFSA ID or personal information  to log in. You can also request for paper FAFSA form which you need to complete and mail to the organization for further processing. You should understand that there are FAFSA deadlines for form submission. Please note that Federal aids program deadline may be different from the state aids deadlines. For your form to be processed, you need to submit it before the stipulated deadlines.  The information you provide will determine the type of financial aid programs you will qualify for. It is a series of about one hundred questions. Therefore, it is not a form you can fill in an hurry. It might interest you to know that the US government has two financial aid programs for people seeking student loans. These are; the William D. Ford Federal Direct Loan program and the Federal Perkins Loan program. The William D. Ford Federal Direct Loan program can be referred to as Direct Loan program. This is the largest federal student loan program under the U. S. Department of Education. Under Direct Loan, there are four different types of student loans available. They are Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans and Direct Consolidation Loans. Let me explain these loans a bit so that you can have a fair understanding of how they work.

  1. Direct Subsidized Loans: This loan will help you cover the costs of your higher education or career school. To qualify for Direct Subsidized Loans, you need to be an eligible undergraduates student and must demonstrate financial need before you can be considered for the program. Government through the U.S. Department of Education will help you pay interest on the loan while you are in school or during deferment period. This means that you will not be charged interest while you are in school at least half time and during deferment period. Interest rate on Direct Subsidized Loans is fixed at 3.76% for loans first disbursed on or after July 1, 2016 and before July 1, 2017. However the interest rate for loans first disbursed on or after July 1, 2017 and before July 1, 2018 has been increased to 4.45%. You can be granted up to $5,500 depending on your grade level and dependency status.
  2. Direct Unsubsidized Loans: These loans are for eligible undergraduate, graduate and professional students. However, unlike Direct Subsidized Loans,  the students don’t need to demonstrate financial need before they can be considered for the program. Interest rate on Direct Unsubsidized Loans is fixed at 3.76% for undergraduates and 5.31% for graduates and professional students for loans first disbursed on or after July 1, 2016 and before July 1, 2017. However the interest rate for loans first disbursed on or after July 1, 2017 and before July 1, 2018 has been increased to 4.45% for undergraduates and 6% for graduates and professional. You can be granted up to $20,500 depending on your grade level and dependency status. If you have been granted any subsidized loans for the same period, you will no longer be eligible for the whole $20,500. The maximum loan you can be granted  will be less the amount of subsidized loans you received for the same period.
  3. Direct PLUS Loans: These loans are made available to help pay for education expenses which are not covered by other financial aid program. They are meant for graduates, professional students and parents of dependent undergraduate students. Direct PLUS Loans has a fixed interest rate of 6.31% for loans first disbursed on or after July 1, 2016 and before July 1, 2017. New interest rate for Direct PLUS Loans Loans first disbursed on or after July 1, 2017 and before July 1, 2018 is 7%. The maximum amount you can be granted under Direct PLUS Loans Loans Program is cost of attendance minus any other financial aid received.
  4. Direct Consolidation Loans: It is possible that you obtained two or more different federal student loans. Direct Consolidation Loans will help you to combine all of them into a single loan. So, instead of paying for these loans separately, you will only need to be paying for one loan every month. Direct Consolidation Loans will also help you extend the term of your loan. This makes things easy for you. Can you consolidate private and federal student loans? The answer is no. You can’t consolidate private student loans with federal student loans. That does not mean that you cannot consolidate private student loans. The point is that you cannot do it under government financial aids programs. Before you rush into consolidation of your student loans, you need to understand that Direct Consolidation Loans will not help you save interest. Instead your interest rate may go up a bit.

Federal Perkins Loans: This is another low interest loan that can help undergraduates and graduates students that are in exceptional financial needs finance their education. The maximum amount you can be granted under Federal Perkins loan program is $5,500 for undergraduate and $8,000 for undergraduates and graduates students. However, this will be subject to your financial needs and the availability of funds in the school where you apply. Federal Perkins Loans attract fixed interest rate of 5%.

If you are offered the Direct Loans, it is important to note that your lender is the U.S. Department of Education and not your school. On the other hand, under the Federal Perkins Loans Program, your school is your lender. Also, you should understand that the Federal Perkins Loans Program is meant for undergraduates and graduate students with exceptional financial need. 

Read Also: Important Facts about Debt Consolidation Loan

Eligibility for Federal Student Loans

There are certain requirements you have to meet before you can be considered for Federal Student Loans. Below are the basic eligibility requirements:

  • You must demonstrate financial need. This may not apply to Direct Unsubsidized Loans.
  • You must be a U.S. citizen or eligible non-citizen.
  • You must have a valid Social Security Number. This is compulsory for you if you are a student from the Republic of the Marshall Islands, Federated States of Micronesia, or the Republic of Palau.
  • If you are a male, you must be registered with Selective Service between the ages of 18 and 25.
  • You must be enrolled or accepted for enrolment as a regular student in an eligible degree or certificate program
  • If you are applying for Direct Loan Program you must be enrolled at least half-time before you can be eligible for funds.
  • You must maintain satisfactory academic progress in your school
  • You must sign the certification statement on the FAFSA. By signing this certification statement, you are saying that you are not in default on a federal student loan and do not owe money on a federal student grant and that you will use federal student loans only for educational purposes.
  • You must also show that you are qualified to obtain a college or career school education.

How much can you get from Federal Student Loans?

How much federal student loans you will get will vary depending on whether you are an undergraduate student, a graduate student or a parent of a dependent undergraduate student. Other factors that will determine the amount of federal student loans you will receive include your financial need and your years in college. If you are applying for Direct  PLUS Loans, the factors that will determine how much federal student loans you will receive include the availability of fund at your school, the remaining college costs not covered by other financial aids and the result of your credit check. The essence of the credit check is to have information about how you have been paying your bills. This will help the lender to determine predict whether you will repay any future loans. If your credit history reveals that you have any unpaid collection accounts, accounts that are currently ninety days or more in delinquency, lease or contract terminated by default, tax lien within the past five years (whether county, state or federal tax), foreclosure within the last five years, bankruptcy within the last five years, wage garnishment within the last five years, you may be denied the Direct PLUS Loans. Other factors that may disqualify you include having charge offs or write offs of federal student loans, default on a loan, even if you have paid off the claim and repossession of collateral within the last five years amongst others. Therefore, if you know that your credit history contains any of the points mentioned here, you may not be considered for Direct PLUS Loans.

The table below will give you a fair idea of how much of the federal student loans you can get under each financial aid program:

Amount

Type of Federal Student Loans
 

Undergraduate Students

Up to $5,500 per year Perkins Loans
 

$5,500 – $12,500 per year

Direct Subsidized Loans

Direct Unsubsidized Loans

 

 

Graduate Students

Up to $8,000 each year Perkins Loans
Up to $20,500 each year Direct Unsubsidized Loans
College costs not covered by other financial aids Direct PLUS Loans
Parents of a dependent undergraduate student Child’s college costs that are not covered by other financial aid Direct PLUS Loans

Advantages and Disadvantages of Student loans

Before you conclude whether to apply for student loan or not, you may like to weigh the implication it may have on you. That is why we shall quickly talk about the pros and cons of student loans here.

Pros of Student Loans

Availability of funds: Except you win scholarship, you will agree with me that going to University require that you pay for tuition fees, accommodation, meals and so on. Unfortunately, it is not everybody that has the desire to go to University that can afford the tuition fee and other incidental expenses. At times, you come across brilliant students that are out of school by the reasons of lack of supports. With education loans, many students have been able to pay their way through colleges and universities. If not for college loans, the dreams of this category of students would have been aborted. Today, many people who are doctors, engineers, accountants, lawyers and many other professionals are direct beneficiaries of student loans

Career Success: Labour market is becoming more competitive. Before, you didn’t need to be a university degree holder to rise to the top of your career. But today, anyone that wants to take his career serious will need to have at least university degree. University degree gives you an edge in the labour market. So, if anyone is able to take advantage of student loans to secure a university degree in order to climb the career ladder, I think it is worth the pain. With good job and adequate planning, one can easily pay off the student loan within a short period.

No Cosigner Required: Federal student loans can be described as student loans without cosigner because your credit status is not relevant here. If you are eligible, you will be awarded the loan without any credit cheque or someone to cosign the loan. You are not at the mercy of of the credit rating of anyone to determine the amount of student loans you can borrow. Also, cosigning can strain relationship if you don’t live up to the expectation of the cosigner. With student loans, you can spread  your payments in a way that is convenient for you without having to please any cosigner.

Building of Credit History:  If you don’t have a credit, it is difficult to build a credit history. And without a credit history, it is absolutely impossible to ascertain your credit worthiness. If you want to apply for auto loan, your credit history will be required. It is easier to get student loan as a student than to get an auto loan. If you had a student loan which you repay without any default, it will be easier for you to get private student loans than somebody without any credit history. Also, having a good credit history can put you at advantage when searching for job or a new apartment.

Advantages of Federal Student Loans Over Private Student Loans

In addition to the advantages listed above, federal student loans offer some advantages over private loans. Some of these have been mentioned before. But for the purpose of emphasis, I will like to summarise them here. The interest rate on federal student loans is fixed and the rate is usually cheaper than private student loans. While private student loans may require that you start paying back the loan when you are still in school, federal student loans will allow you to postpone the repayment until you graduate. Also, with federal student loans, you can temporarily postpone your payment or reduce your monthly repayment amount in case you find it difficult meeting with your payments. Good enough, neither will deferment nor forbearance affect your credit score. The only thing is that it will be noted in your credit reports. The most important thing is that you should not miss payment prior to the approval of your deferment or forbearance.Below are common postponement available under Federal Student Loans:

  • Unemployment Deferment: If you are diligently seeking and unable to find full time employment in the United States or you are eligible to receive unemployment benefits, you can apply for unemployment deferment. Each unemployment deferment can last for six months. Nevertheless, you can reapply for a maximum of three years.
  • Economic Hardship Deferment: This can be granted up to twelve months at a time. It is renewable for for a maximum of three years.
  • In-school deferment: You can postpone your payment for unlimited period as long as you enrolled at least half time in the school.
  • Discretionary deferment: this only cover a maximum period of twelve months.

In the case of some private student loans, you may not have prepayment option without paying penalty fee but federal student loans will allow you to prepay your loan without paying prepayment penalty fee. In addition, most of the federal student loans will not require a cosigner neither do you need a particular credit score (except for Direct PLUS Loans). But in private student loans, reverse is the case. Loan forgiveness is another advantage that has benefited a lot of students. Find below the list of available student loans forgiveness programs. You should ensure you ask your servicer how you can benefit from any of them. They have different eligibility requirements:

  • Public Service Loan Forgiveness
  • Federal Perkins Loan cancellation
  • Forgiveness from an income-driven plan
  • Loan forgiveness for nurses
  • Loan forgiveness for teachers
  • Loan repayment assistance for lawyers
  • Loan repayment assistance for doctors and other health care professionals
  • Student loan discharge for special circumstances
  • Additional student loan repayment assistance programs (LRAPs)
  • Military student loan forgiveness and assistance

Cons of Student Loans

Burden of Debt: Debt is a burden. The truth about debt is that it is now easy to repay especially when what you earn is not even sufficient for you. You know how much it is difficult to save. It actually takes a lot of discipline to save. In the same way, it is very difficult to repay a debt. And until you repay your debt, you don’t actually feel a sense of freedom. Ask anyone who had ever been in debt, he will tell you how he had a sigh of relief when he finally completed the repayment of the debt. If you don’t want to over burden yourself with debt, it may make sense for you to conduct a research about what the starting salary in your field is. At least, this will help you to project how much you will be able to pay conveniently from your salary when you get job. You need to bear in mind that if you don’t complete your education or you can’t get your desired job after you complete your education, you are still under obligation to repay the loan.

Increased Financial Difficulty: There is no guarantee that you will secure a good job immediately after you graduate from school. If you have the obligation of paying back student loan and its interest when you have no or little income coming to you at each month, it might create a financial tension for you. This may even affect other areas of your life. This is one of the reasons you will be required to complete entrance counselling before you receive your fund if you apply for Federal Student Loans. This is essentially to let you understand that you have obligation to pay back both the principal and the interest thereon. You also need to agree to the terms of the loan. A lot of students don’t mind agreeing to loan terms which may not necessarily convenient for them just because they need the loan badly. But when it comes to repayment, that is when the reality will dawn on them.

Student Loans default: It is easier getting student loan than repaying. By the time you are getting the loan, you may have a good plan laid down on how you will repay the loan. But supposing the plan did not work out, this may lead to default in payments. Apart from the fact that defaults may attract penalties, it will not help your credit history. This will also have damaging effects on your credit score thereby making it difficult to get other loans in the future. Even, if you are able to obtain any private loan, it will be at a high rate of interest. You should understand that if you default in your loan repayment, government will take all possible action to ensure that it gets the money back from you. These steps may include withholding of your tax refund, issuing of instruction to your employer to deduct payments from your salary or the agency involved may take legal action against you and you will be liable to pay the collection expenses as well. For people that take home equity loans to finance their education, the risk can be too high. Default in payment may result to the foreclosure of the property. Therefore, it is very important that you make your payments on time, even though you don’t receive any repayment notice. You must see it as a responsibility. You may stop receiving repayment notice from your lender if you change your address.  That is why you need to keep your lender informed any time you have a change of address. You may need to set payment alerts or calendar that will reminding you when you need to make the payment. This will ensure that you don’t miss or delay your payments. Also, if you are having difficulty in repaying your loan, you can request for a deferment or forbearance. Alternatively, you can apply for income driven repayment option. At least, this will help you rearrange your monthly payments to a manageable amount. These options are applicable to federal student loans. However, if you have only have parent PLUS loan or you are in default on all your federal student loans, you will not be able to apply for income driven repayment. For students on private loans, you might consider refinancing. If your credit score has improved significantly beyond the level it was when you originally took the loan, you might qualify for lower interest rates and longer repayment period. This will help you reduce your monthly payment. But if you don’t do your calculation very well, you might end up paying more interest as a result of the extended payment period.

Read Also: Student Loan Consolidation Facts You Need to Know

Conclusion

I like to conclude that education is good. However, you don’t need to mortgage your future for the sake of education. If you need to obtain college loans, please it is advisable you reduce it to the barest minimum. You will be glad you did. Federal student loans are cheaper and more flexible than private student loans. With Federal student loans, you may not need to start paying the loan immediately after graduation if you have financial problem.

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