Student Loans: The Challenges and Choices

When you first start looking at colleges, the one thing at the top of your mind at all times is that it will cost you a substantial sum of money. While your parents may have saved some money during your childhood, there's a good chance you'll be looking at how to pay for your education through student loans sooner or later. It's alright; you're not alone on this one. The average college senior graduates with over $19,000 in student loan debt. Imagine the weight of a physician or chiropractic student loan debt; consolidation among other steps is necessary to manage such a large sum. It's not something you can necessarily bypass altogether. However, by doing the proper research and getting yourself properly familiar with the loan process, your options, and the cost of interest over time, you can minimize the damage early.

Getting a Loan

Making the decision to take out a loan is a big one. At 18 years of age, you are likely making the first big financial decision of your life and the implications are long term. You'll be paying back a student loan for years to come, so the last thing you want is to be hit with challenge after challenge after you've made your decision. Finding the right student loan options quickly is vital to ensuring that your college years are as stress free and focused on academics as possible.

The first step is to approach the government. Unless you are substantially bad off financially, you cannot likely expect the kind of financial assistance from the government that would allow you to bypass student loans. With financial aid offers lowering every year and the requirement bar going up, those grants are nearly impossible to earn anymore. However, the student loan programs offered by the government are a different matter entirely.

Stafford Loan Program

After filling out your FAFSA (Free Application for Federal Student Aid) you are eligible for whatever the school you decide to attend will offer you. The most commonly offered student loan program from the government is the Stafford Loan. Secured through the student without a cosigner, a Stafford Loan is offered in stepped increments, rising each year you attend school. During your freshman year, the most you can take in 2007 is $2625, while for juniors and seniors the limit is $5500. This applies to those still considered dependents for tax purposes (students under 23 years of age). Subsidized loans are offered to those with considerable financial need, while everyone else can still get funding by applying for an unsubsidized loan.

Perkins Loan Program

Your school itself might offer further loans beyond the federal offerings such as a Perkins Loan, fixed at 5% interest regardless of the cost of other loans. This can be good or bad, depending on the economy. In 2003, the loan rate for Stafford loans was as low as 1.5%, while today, loans disbursed after July of 2006, are fixed at around 6.5%.

PLUS Loan Program

The final option from the government is the PLUS (Parent Loan for Undergraduate Students) loan, an option that calls for the loan to be cosigned by your parents, where the government loans you money for school on their credit instead of yours. Very often when the previous two methods fail, you can find some funding through this method. You should talk to your parents early and make sure they know that you might need to rely on their financial standing to get you through college, even if they don't help you directly. This is a major step and a massive responsibility for your part as well.

Private Loans

But, when all else fails and you have no funding for school, you still don't need to fret. Numerous banks and financial institutes offer low interest, long term loans for college students. Most often, these loans require cosigners and the terms are not as good as the federal loans. It's not all downsides though with privately backed loans. Instead of worrying about the $4,500 differential in your tuition and books from your Stafford Loan, you will often receive funding worth up to 100% of your tuition for a given year. Especially at a private institute, the differential can be obscene and private loans are almost required.

While private loans often require credit checks as well, something federal student loans do not they are traditional in the manner of a bank loan and carry the same terms. The rates might often change but you might get bonuses and lower interest terms and payment bonuses. It's important to research each financial institute that offers you student aid as each one offers different options, depending on your financial situation.

After School

Once you've graduated and your six month grace period is up, you'll be looking at the prospect of paying those student loans back. They add up quickly, but because of varying student situations, there are varying repayment schemes as well. The standard payment option still exists, offering even payments over 10 years. However, there are also graduated payment plans that often reduce your payments by as much as 60% for the first four or five years so you can get your finances in order. This option is perfect for the people that start with a lower paying job and plan on working their way up to a larger paying job within a few years. One last option is to extend the repayment plan from 12 to 30 years. This option is rarely taken, but is taken many times by those who have gone through a full 8-10 years of doctoral school.

For those with enough loans and a slew of payment options, things like ACS student loan consolidation are also a good idea. By consolidating, you can reduce your number of payments to one, lower your interest rates, and still take advantage of all of those great repayment plans.

The most important thing for a new college student to realize is that there are always options and there's no need to immediately spend vast sums of money on loans before looking around. Talk with your financial aid consultants on campus and find out what you are eligible for and what lifestyle changes you could make to raise your eligibility. It's not easy, but by rising to the challenge, you can make the right choices for your student loans.

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