College Students: How to Avoid Future Problems when Applying for Student Loans
Costs for college are rising, and so are the interest rates across the board for student loans. For young people faced with the task of paying for college themselves, there are few options to come up with the capital necessary to meet the tuition, housing and fees associated with most colleges and universities. There are student loans which are available in some form to almost every type of person, but caution should be placed above advantage if that is the road taken.
Scholarships exist in the world and for a wide array of demographics there are a plethora of unique awards which will whittle down your overall cost of attendance. Let’s talk in generality, though. Assuming that a “C” letter grade is average and most graduating seniors from high school are in fact average, unless they display exceptional extracurricular activities or display severe financial need, higher education is entirely unaffordable. In some circles going to college is without question what the next step in life is after graduating from high school. There are simply not too many jobs in the United States that pay a living wage without a higher education degree. Some young adults will take on a trade and become electricians, plumbers, carpenters, etc and be able to make a decent living. But, even people with tangible skills to build and construct are at a shortage. It seems too many young people that college is their only way to earn a decent living in an increasingly competitive job market.
Colleges and Universities offer a wide array of subjects to study on a full or part-time basis. In-State tuition costs can be somewhat reasonable compared to private institutions which costs rise into the tens of thousands of dollars per year. A person who feels that college truly is for them will find many loans being made available to them through the financial aid office of the college or university and even in magazines and on billboards. The main distinction of loans is whether they are Federal or privately provided. If the loans are from the Federal government there will usually be a lower interest rate with a more diverse list of repayment options. Not to mention; the subsidized loans do not accrue interest during your time in school, which can save the borrower thousands of dollars. Privately backed loans tend to have higher, variable interest rates which can go up any time and are more ridged in their collection policies. Federal loans are usually made available to most individuals through their financial aid offices of the institution they attend. Often times, the cap on what can be borrowed through a Federal loan is limited and with a combined set of Perkins and Stafford loans the entire cost of attendance isn’t covered. In this case, private loans are usually the only way to bridge this gap, minus a wealth family member or large savings account.
Private loans are attractive in their initial offers. Many will not require a co-borrower if the borrower has decent stand-alone credit. They also will offer extremely high amounts of capital up front which is tempting to just take advantage of in full. Many loan companies will offer $50,000 a year to a student with very little red tape. The catch is that unless the fine print is thoroughly combed over, a young person will have trouble recognizing that an initial interest rate of 7.5%, as an example, will be variable. The variance on how high that interest rate can go depends on a large assortment of factors mainly left to the discretion of the bank lending out the money.
Students may come out of college with a degree in hand, guilt free from their four or so years of borrowing money to finance their education, but once the initial loan statement comes, the reality of what they’ve done sets in quickly. Rates can go well above 10%, sometimes even past 15% and drive the monthly payment up astronomically. The loan companies also offer payment plans where all the borrower pays each month is the interest accrued for a period of time, leaving the principal amount untouched. This road is not the smart way to go.
In order to keep costs down to a minimum and still get the most out of a high education degree, corners must be cut and ingenuity must be used to keep as little debt as possible out of the private bank’s hands. First off, every student needs to be absolutely sure their financial aid paperwork is done properly and on time. This allows for the maximum amount of aid to be allocated without time constraints or conditions. Secondly, once the Federal loans are completely maxed out and private loans must be taken out, shop around until a reasonable rate of interest is found. It is difficult to find a fixed interest private loan, especially without a co-borrower, but there are loan options where the variance in how much the interest rate can go up is fixed, which is better than seeing the interest rate go up 5% a year for who knows how long. Thirdly, if putting yourself through college is really what you feel is right for you, keep in mind all of the costs and do not think that any of the money being offered to you to pay for college is “cheap.” Whether the grace period after graduation is six months to a year, the loan payments will start coming in and unless you plan on living off Ramen noodles or making an entry level salary in the six-figures, be smart about where you borrow and how much.
