Truth About Student Loans
THE cost of higher education creeps higher and higher each year, at both
public and private colleges and universities. And with that increase comes
the need for more financial assistance in the form of not only
scholarships and grants, but also student loans.
About 64 percent of all students borrow money to finance college. Annual
student loan volume more than doubled from 1990 to 2000 to $37.4 billion,
according to one study.
There are two sources for financial aid, one from the federal government
and the other from private or consumer companies, including colleges and
universities. One report shows that federal aid has changed drastically
since 1980. Federal student loans--Perkins or subsidized and unsubsidized
Stafford loans--now account for 59 percent of student aid. Grants account
for 41 percent of student aid. Twenty years ago, the debt-grant ratio was
exactly the opposite.
To aid you in the process of applying for financial aid, here are 10
things you and your family should consider:
1. Build a financial plan. That way, when you do apply for financial aid,
you have a better idea of what you and your family can afford to
contribute. It's important to note, however, that not all schools
participate in all federal student aid programs. Experts say you should
check with your high school guidance counselor or your school's financial
aid office to make sure your school participates in the federal programs
you are interested in.
2. Obtain and complete a FAFSA (Free Application for Federal Student Aid).
A FAFSA opens the door to the financial aid process. This application will
help you determine if you're eligible to receive not only federal
financial aid, but also aid from private sources, says Sandra R. Dunn,
chief marketing and sales officer for Chela Financial, a San
Francisco-based education financer. "It's an important first step," Dunn
says, "even if you or your parents don't believe you're eligible for
federal financial aid."
3. Find out what, if any, loans you've been awarded. By using your award
letter, you can figure out which need-based loans you've been given and in
what amounts. Depending on your year in school, loan amounts range from
just under $3,000 to more than $5,500, says Katarrah Basnight of Killeen,
Texas, a financial aid counselor with Sallie Mae, an education lending
4. Don't borrow more than you need. Look at alternatives. Just because
they've offered you the maximum amount, it doesn't mean that you have to
accept the maximum amount. Take a second look at your expenses and see
where you can make cuts. You may want to work off-campus or during breaks
or during your summer vacation to save money for the school year.
5. Find the free money. Make sure you've exhausted all scholarship
opportunities. Apply for any and every scholarship you can find. If
necessary, you may even want to appeal your financial aid package from the
school of your choice.
6. Move quickly to complete your loan application. Once you've determined
your financial need, apply for a loan right away. It may take up to two
months for approval to come through. Think about accepting the loan with
the best terms. The lower the interest rate, the less you'll have to repay
once you've completed your education.
7. Understand the terms of your loan. Most lenders will give you all of
the information you need to grasp the full financial picture. What any
borrower must understand is that once he or she has accepted a loan, he or
she agrees to the terms of repayment, with interest. For federal loans,
interest rates vary from about 4 percent to 8 percent and are set each
8. Fill in the gaps. Not everyone's financial needs are met by federal
student aid. Maybe the parental contribution isn't as high as anticipated,
or perhaps a scholarship fell through. Whatever the case, many students
apply for consumer or private loans, according to experts. This money can
be used to cover unforeseen expenses, such as books, a computer, trips
home and other items not covered by federal student aid. Because many of
these loans have higher interest rates, experts advise that you save this
option for last.
9. Understand repayment. As you near the end of your college career, make
sure you realize your options for repaying the loan. And if you're
struggling to make payments, many lending agencies offer loan forbearance
or deference if your circumstances warrant such an action. The
alternative, defaulting on your student loans, can be a devastating blow.
"Having a defaulted loan destroys your credit," says Basnight, a senior
college answer representative for Sallie Mae. "You could get into several
types of collection activities, including garnishment of your wages."
10. Consider consolidation. Combining all of your student loans for one
monthly payment can save you money. This year, the interest rate on all
federal student loans dropped to an all-time low, ranging from 3.46
percent to 4.86 percent. Eligible borrowers who are struggling with
payments or who are in their grace period should consider consolidating
their loans to reduce monthly payments and lock in the lower interest rate
for the life of their loans.
If you have any specific questions about the Free Application for Federal
Student Aid (FAFSA), call the Federal Student Aid Information Center at
800/4-FED-AID (800/433-3243) or go to its Web site at
COPYRIGHT 2002 Johnson Publishing Co.
COPYRIGHT 2003 Gale Group