Financial Aid: Student Loans 101
By Michele Blandino
We all know that a college education is not cheap. Costs have been steadily climbing, even at the traditionally less expensive state colleges and universities. In fact, some experts predict that for the 2005-2006 academic year tuition alone will averge $25,000. Add to that, the cost of room and board, books and other incidentals, and the bill can easily hit $40,000 per year.
Many students will turn to financial aid to help defray some or all of their college expenses. However, with more and more students hoping to get a slice of the financial aid pie, there is less money to go around and so, the awards are getting smaller.
Fortunately, student loans provide another source of education funding. Unfortunately, many students fail to do their homework when they apply for their loans and consequently find themselves in dire financial straits before they even graduate.
Not all Loans are Created Equal
One of the first things any students contemplating a student loan should do is shop around. Student loans are no different from any other type of loan in that the interest rate offered by one lending institution can be dramatically different from that offered by another.
One mistake students commonly make is to assume the financial aid officers at their school will provide the best possible information. This is not necessarily true; in order to obtain the best possible information, students need to do a little research to learn about the different loan programs that are available and then ask specifically for those programs.
For example, the Federal government sponsors a loan program called the Perkins Loan. This is a federally funded loan program which provides low-interest (currently 5%) loans to students that demonstrate financial need. There are also low interest loan programs specifically for those studying specific disciplines such as health or medical sciences, law or business.
Charge! - Not!
Many cash-strapped students charge their tuition or other expenses on credit cards or take personal loans to help with the costs. While this does offer a short term solution, it should be avoided unless absolutely necessary. There are a number of reasons why. First, and perhaps most important is that you will have to begin to repay these amounts immediately. Payments on student loans, on the other hand, generally do not begin until 6 months after graduation day.
Next, the interest rates for these types of loans will be far above what you will pay through a traditional student loan program. Consider what you are currently paying on your credit cards; 15%-22% is the norm. Perkins loans, on the other hand, are currently at 5% while other programs are generally in the 8%-9% range.
Likewise, taking out a home equity loan to finance a college education is typically not recommended since, in the worst case, foreclosure can occur if you find yourself unexpectedly unable to make the payments. While there are consequences for defaulting on a student loan, they certainly aren't as severe as the threat of being homeless.
For More Information:
Here are some places you can visit to begin learning about student loans and the programs that are available: