5 Things You Should Know About Student Loans

by Leon on January 23, 2013

tips about student loansAlthough everyone deserves the opportunity to better themselves and improve their job prospects by earning a college degree, the sad truth is that few can afford the expense entailed. And while there are certainly ways to mitigate costs, scholarships and grants are both limited and difficult to obtain thanks to stiff competition from other students. The long and short of it is that many college-bound kids find themselves facing a mountain of bills for tuition, books, and living expenses, and their only real option in most cases is to take out student loans to cover these costs. Even with some family help and a part-time job, the majority of students will have to turn to financial aid or possibly private lenders in order to drum up the scratch that will fund their ongoing education. The hope is that all of this will lead to a high-paying job that allows for repayment of the loans. But before you take the money and run, there are a few things you should know about taking out student loans.

The upside of government loans. In the interest of providing for a more educated populace, the government has seen fit to offer student loans by way of federal financial aid. In fact, this comprises the vast majority of all student loans (somewhere between 90 and 95%, it is estimated). And the benefits for students include no onus to repay until school is completed, as well as lower interest rates than those offered by other lenders. It’s a great way for students to cover expenses in college without the worry of an immediate repayment schedule to contend with.

The downside of government loans. When you fail to repay the average loan (for a car, home, etc.), the lender, generally a bank, will take you to court for repayment. However, if you cannot pay you may file for bankruptcy in order to wipe your slate clean. Unfortunately, this won’t work with government student loans. While you can certainly file for extensions if you have trouble getting a job after college, they won’t last forever (and generally no more than a couple of years). And if you can’t repay, the government will garnish your wages and wipe out your bank accounts until the debt is settled, and that includes accumulated interest.

Filing independently. In case you didn’t know, your allotment of government funds is based not on your earnings, but on those of your parents. The government holds that a family bears some responsibility for the expense of sending kids to college, and the more money your parents earn, the less aid you’ll receive. That said, you may be able to file independently. However, you have to meet specific criteria for age and or emancipation from your parents (either legal or through living on your own for a set amount of time).

Enrollment issues. In order to continue receiving student loans with payments deferred until graduation, you must take a certain minimum number of classes each semester. Generally speaking, you have to be enrolled at least half time if you want to retain the benefits of student loans.

New legislation. In order to lower student debt, President Obama issued an executive order that would allow students to consolidate loans (often at a lower interest rate overall) as well as reduce payments. The new regulations will set minimum monthly payments at 10% of discretionary income (as opposed to the former limit of 15%) and set a maximum repayment time of 20 years (it used to be 25), after which additional monies owed will be forgiven (provided you have not defaulted). So if you thought that attending Columbia, Northwestern, or Pepperdine was out of the question because it could leave you paying off your loans for the rest of your life, perhaps there is a light at the end of the tunnel after all.

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