|

Student Loan Primer

Our parents always told us that hard work was the only road to success, but if they're so "successful" why are we stuck with all these student loans?
--Wake Forest University student, CollegeHumor.com

In the summer of 2007, the U.S. Department of Education sent letters to 721 colleges, universities, and trade schools where student lending practices seemed fishy. The government determined that the source of most of the student loans at each of these schools came from one lucky lender. At all these schools, a solitary lender held at least 80% of the institution's federal student loan volume. On some campuses, a single lender presided over a monopoly.

Because many lenders are eager to provide loans to college kids, you've got to wonder why any school would allow one competitor to dominate. Some schools explained that one lender was clearly the superior choice, so its students gravitated to it. But the discovery sure seemed to mock the notion of comparison shopping.

In its letter, the federal government didn't accuse the schools of lawbreaking, but the list did inflame the worst fears of student loan industry critics who have watched one school after another get caught with its hand in the cookie jar. Investigations have revealed that some colleges and universities -- no one knows the exact number -- have been selling out their student and parent borrowers for their own gain.

If you must borrow, there are proven ways to cut your costs. Just as important, you've got to know which loans are worth pursuing. Here's what you need to understand to protect yourself:

Use federal loans first. Federal loans are the superior choice for families. Unlike private loans, federal loans offer lower interest rates and fixed monthly payments. What's more, federal loans offer repayment plans based on a graduate's income, deferments for financial hardships, and cancellation provisions if the borrower dies or becomes totally and permanently disabled.

Here are the main federal loans:
Stafford loans. These loans come in two flavors -- subsidized and unsubsidized. The subsidized Stafford, reserved for needier students, is more attractive because the government pays the interest while the student remains in school. To get an idea of who qualifies, about two-thirds of students with subsidized loans have adjusted family incomes of less than $50,000, while a quarter of students have family incomes up to $100,000. Less than 10% of students with subsidized Staffords have family incomes that exceed $100,000. In contrast, the unsubsidized Stafford is available to students regardless of their parents' income.

Unfortunately, many families won't be able to borrow all that they need through a Stafford loan. The government has received a lot of flak for maintaining a low Stafford borrowing ceiling. Most freshmen and sophomores can only borrow up to $3,500 and $4,500, respectively, while juniors and seniors can obtain $5,500 each year.



Next: Page 2 >>
|

From The College Solution Copyright © 2008, FT Press. Used by permission of FT Press, and Pearson Education. All rights reserved.

To order this book go to Amazon.


stay connected

Sign up for our free email newsletters and receive the latest advice and information on all things parenting.

Enter your email address to sign up or manage your account.

Facebook icon Twitter icon Follow Us on Pinterest

editor’s picks

thanksgiving crafts & recipes

Make this Turkey
Day fun for the
whole family with
these essentials.

GO

highlights

3 Fun Thanksgiving Games for Kids
Looking for some great Thanksgiving games to play with your kids? Print our free Pin the Feathers on the Turkey game, Pin the Hat on the Pilgrim game, and Thanksgiving Parade Bingo game for loads of laughs this Turkey Day!

Kindergarten Readiness App Wins Gold
Our Kindergarten Readiness app won the Gold Award of Excellence in the educational category at the 2014 Communicator Awards. This valuable checklist comes with games and activities to help your child practice the essential skills she needs for kindergarten. Download the Kindergarten Readiness app today!

Top Family Movies in Theaters for the Holidays
Taking the kids to the movies is a special family treat for the holidays! Don't miss 2014's best family films in theaters from Thanksgiving through Christmas.

Find Today's Newest & Best Children's Books!
Looking for newly released books for your child? Try our new Book Finder tool to search for new books by age, type, and theme, and create reading lists for kids!