Act Now to Avoid Large Student Loan Debt
In reality, you really should start considering how you are going to pay back your student loans before you even accept them.
Subsidized vs. Unsubsidized Student Loans
It is important to pay close attention to the amounts that you are awarded when you are given a loan, and it is also very important to notice if the amounts you have been given are subsidized or unsubsidized.
A subsidized loan is given to the recipient based on their financial need. This type of loan is most advantageous to the borrower because he or she will not accrue any interest on the amount borrowed until out of school and beginning student loan payment the government will “subsidize” the interest, meaning they will pay it for you while you are still in school.
Unsubsidized student loans are often necessary, but they are not as advantageous to the borrower as a subsidized loan. These types of loans begin to accrue interest as soon as they are accepted, regardless of when you begin your student loan payment. It is important to note that you do not necessarily have to accept every loan that you are offered. The less you borrow, the better off you will be in the future.
US Federal Government Loans and How They Work
Federal loans for students are, most always, the best loans because they have the lowest interest rates. If you are a student and taking out loans for yourself, there are two different types that you may be eligible for. The first and most common is the Stafford Loan. The Stafford Loan is a subsidized that does not accumulate interest until you have finished your schooling. It is also important to note that, should you choose to go to graduate school after obtaining your undergraduate degree, you will not have to begin student loan payment for the Stafford Loan until you have completed your graduate education.
Another, but less common type of loan for students is called a Perkins Loan. This type of loan carries a very low interest rate around five percent at the time of this writing but they are only given to individuals who show significant financial need. Because of these strict stipulations, most will not receive these loans.
It is important to note that in order to be eligible for either of these loans, you must fill out the Free Application for Federal student Aide, also known commonly as the FASFA. The government will then decide, based on the information that you provide to them, how much they are willing to loan to you. Naturally, the less that you borrow, the less your student loan payment, over time, will be. But, if you need to borrow, a federal loan is the best way to go at this time.
There are also federal loans available that your parents can take out to help you with your student loan payment. These are called PLUS loans, and they allow for the parent of a student to borrow the remainder of what is needed to put their child through school in a sense, they can cover all of the costs that you might not be able to cover with your own financial awards. PLUS loans carry a 8.5 percent fixed rate of interest for the duration of the loan. Studies show that only a small percentage of parents are actually taking advantage of this loan, though it is very advisable, and, in most cases, the best way to meet remaining costs.
Plan Ahead for Student Loan Payment
The best way to make sure that you are not crushed by the financial weight of a large and ominous loan is to never take one out in the first place. While, surely, you do want the best education out there, you should also consider the price of attending any school before you commit yourself to it. The average debt owed after college is $19,000. This is reasonable, considering that the average yearly income for someone with a bachelor’s degree is around $54,000. However, it is important to note that these are averages, and, therefore, there will be people who owe much more than the average after college and will also make much less yearly than the average.
Planning for anything under $25,000 in debt owed after graduation is, by most loan counselors, considered reasonable, but the ultimate decision is up to you. A great education does not have to cost you an arm and a leg, and there are many ways to keep the cost down. Student loan payment does not, necessarily, have to be a huge burden.
How to Keep the Cost of Your Education Down to Avoid Financial Ruin
In these trying economic times, more people than ever are choosing to begin their college education at a community college. The average cost of yearly attendance at a community college is just above $2,000; public 4 year institutions have an average tuition and fees of just above $7,000, and that price is doubled for the year, in most cases, if you plan to live on campus in a dorm and take advantage of some sort of meal plan.
You can see, then, that there are many choices that you can make that can keep you out of debt and keep your required student loan payment at minimum. Many of these tips are glossed over when that glossy catalog from a very expensive institution comes in the mail and promises you a happy life with all of the things you’ll ever need and more.