Education is the key to financial freedom but, given the statistics students are graduating from college saddled with debt. Sometimes depending on the college or university as much as $100,000 or more. For many students just starting their lives student loan debt could be an insurmountable mountain to climb but, there is hope.
Having a college education has always been part of the American dream, because it represents upward mobility.
Parents struggle to save for their children’s education but, it takes a toll on the whole family and their finances. As a result, students turn to other alternatives in order to afford college.
There are two types of student loan debt. Federal and Private. Federal student loans can help fill the hole between education related costs that grants, scholarships or work study programs may not pay for. Federal loans require that the borrower repay the loan with interest. Before June 2010, student loans were secured under the Federal Family Education Loan Program (FFELP). Through this program loans came from banks or non-profit organizations. Today many of these organizations may still hold the loan or the loan may be now owned by the Department of Education.
Types of Federal Loans
Direct subsidized loans – Based on financial need. This type of loan a borrower will start making payments 6 months after they graduate or leave school. No interest is charged when they are in school.
Direct unsubsidized loans – Not based on financial needs. School will decide how much the borrower receives based on factors such as: how much financial aid is given. Interest is charged at all periods even while in school. When you start paying it back it may be much more than you expected.
Direct plus loans – Credit based federal loan for parents of dependent students. Interest is charged at all intervals even while student is in school.
What are the benefits of getting a federal student loan?
- More flexible than private loans
- You can pay based on your salary
- You don’t need a strong credit report
- You don’t need a co-signer
Private loans are made by private organizations such as, banks, credit unions, non-profit organizations, etc. These loans are more expensive than federal loans. The terms and conditions are set by the lender of the loan. Some private loans may require that you start paying back the loan while you are still attending school , while other private loans may allow you to defer the payments until you leave school. They have variable of fixed interest rates and the borrower is responsible for the interest incurred on the loan. Private loans requires you to have an established credit history or a co-signer if you do not have a strong credit history. You can refinance this loan and you can also deduct the interest from your taxes. Lenders do not offer loan forgiveness. Make sure there are no fees that you are responsible for.
Always be alert. The price of education can be very expensive. If you have any problems with the provider of your loan, please check out the Consumer financial, Protection Bureau For Assistance.