Don’t believe everything you hear about taking out loans and paying them back. We’ll make sure you know the essential details
With everything in the media surrounding student loan forgiveness and the rise in college tuition, many families are turning to college loans when they plan for paying college tuition. What your family needs to understand is that loans are extremely complex and you need to have all of your eggs in the basket when it comes time to choosing the right loan for your situation. Let us take you through the basic but most important information about college loans.
Government Offered Loans
The U.S. Department of Education offers three types of loans to help students pay for their higher education. These loans are typically offered as part of financial aid packages. When a student files for financial aid, these are the first types of loans offered by colleges and universities before anything else. The types of government offered loans include Stafford loans, PLUS loans, and Direct Consolidation Loans.
Stafford loans are taken out by students and paid specifically by students. This type of low-interest loan is offered to undergraduate and graduate students if they qualify after filing their FAFSA. A Stafford loan can either be subsidized or unsubsidized depending on a family’s situation.
If you qualify for a direct subsidized Stafford loan, it is based on your financial need. The great part of this loan is the interest, or lack of it. You will not have to pay the interest for this loan while you are a full-time or even half-time student, during the first six months after you graduate or are no longer enrolled, or during a specified deferment period. The federal government pays the interest during this grace period.
A direct unsubsidized Stafford loan is pretty much a Stafford loan without the benefits of being subsidized. The interest rate must be paid as soon as the loan is taken out and until the loan is paid off, but you can defer payment for some time. The only catch is that you can’t let this unpaid interest accumulate unless it will be capitalized.
PLUS loans, AKA Parent Loans for Undergraduate Students, are loans that are taken out by parents and can only be paid by back by parents. In other words, this loan cannot be transferred to students. For this kind of loan, the government lends money to qualified parents. Parents who are interested in this loan will have a credit check to make sure they can be trusted to make their payments.
PLUS Loans have higher interest rates than Stafford Loans. They do not offer subsidized options, meaning that interest begins accruing immediately after disbursement. Borrowers can choose to start repayment right away or defer payments until six months after the student’s graduation or when they drop below half-time enrollment. You will also have to pay several different fees while handling this loan. PLUS loans are honestly a bunch of bull$h!t, and your family can do better.
Direct Consolidation Loans
Direct Consolidation Loans are a financial tool that allows borrowers to merge multiple federal student loans into a single loan with new terms and repayment options. It simplifies the repayment process by combining multiple loans into one, making it easier for borrowers to manage their student loan debt. Having this type of loan allows you to extend your repayment period, potentially lowering your monthly payment. Additionally, it offers the option to choose from various repayment plans, including income-driven options that take your income and family size into account when determining your monthly payment amount.
These Loans offer a convenient and customizable solution for borrowers seeking to simplify their student loan repayment process and gain greater control over their financial obligations. It’s like bringing all your student loans under one umbrella, allowing you to manage them more efficiently and potentially find a more affordable repayment path.
Private Student Loans
Private student loans are financial resources offered by private lenders to help students cover the costs of their education. Unlike government offered student loans, private student loans are issued by banks, credit unions, and other financial institutions. Private student loans can be seen as a customizable funding option for students who need additional financial assistance beyond what federal loans or other forms of aid can provide. These loans come with their own terms and conditions, which vary depending on the lender and the borrower’s creditworthiness. Unlike federal loans, there is no subsidization with private loans so borrowers will have to pay back every penny themselves.
One of the scary parts about privately taking out student loans is knowing which institution to turn too. With the consistent rise is college tuition and widespread nonsense concerning student loan forgiveness, there are more student loan banking opportunities than ever before. Banking institutions profit on student loans, meaning they will all be ready to provide services for you a little too eagerly. This is only the tip of the iceberg as to why going to an ELA (education loan analyst), like our very own Joe Kerins, is the best thing to do if you’re interested in taking out loans privately.
What is Right for Your Family
This question really has no simple answer because every family is different. There are dozens of variables at play when private and federal institutions are deciding how to help finance your education. A great example of this is underwriting. Private banking institutions can do specific forms of statistical analysis called underwriting that determines what loan and interest rate a family will receive depending on the unique risk and outcomes of this family. This is why one family could get one loan package from a bank and another family could receive a better or worse package from the exact same bank.
We cannot stress enough how important it is for every family who is interested in taking out loans to sit down with an expert, go through your family’s options, and figure out what is best for you. The college system is overwhelming to begin with, so you can only know that you are making the best decision by talking to a professional. Choosing the wrong loan could potentially result in debt that lasts the rest of your life. Do you want that? No you do not and neither do we.
That’s Where We Come in
The services that we provide are all 100% specifically calculated for each family. This means that we can meet with you and come up with the perfect college payment plan for your family based on what assets you have available and where they’re located. The complex nature of paying for college is the reason why our company exists, so let us do what we do best and help you plan early and pay less for college. Sign up for a free college assessment today to see how much we can help your family.
Visit our website for more information like this, and reach out to our financial aid and college affordability experts at 610-422-3530 to start your college planning journey today.