By: Gaurav Bhola, MSM, Managing Editor
College students and their families have started their search for student loans. Due to the lack of liquidity in the credit markets, school students have had difficulty accessing student loans. In the last few months, many college loan lenders have announced that they are suspending or eliminating student loan programs. Recently, over 37 student loan lenders have exited or suspended their involvement in the federally guaranteed Federal Family Education Loan Program. This is the result of the collapse of auction rate securities and the residual effects of the subprime mortgage crisis. Herein, the students and their families have to learn ways to seek out loans from private school lenders.
As more and more loan companies exit the government loan program, educational lending has entered a precarious position. Now more students will turn to private lenders to finance their education. The main difference between federal student loans and private loans is that interest rates are fixed for life by the government on federal student loans.
It is always best to first exhaust subsidized and unsubsidized Stafford loans and the Parent PLUS loans before applying for private loans. While federal loans are helpful up to a point, private loans have now become necessary. In this time of economic downturn, many parents are being denied Federal PLUS loans due to their credit history. A credit history includes foreclosures, bankruptcy, or being late by more than 90 days on debt repayment.
If Stafford loans aren’t able to meet your comprehensive financial aid needs then apply for private loans to make up the difference. Additionally, for international students, private loans are the only viable option as these students are not allowed to apply for federal student loan programs. Private loans are a valuable resource for non-dependent students as well.
In addition to searching for private loans at the college and university financial aid office, now you can apply online. There are two forms of private student loans offered to university students: school-certified and non-school-certified. The interest rates and fees are usually lower for school-certified student loans. You can go to premierstudentloan.com to get competitive private loan quotes.
Most people don’t realize that every time you apply for a loan, your credit score is reduced by five points. The private loan lenders have five or six tiers of varying interest rates and fees that are offered to the borrower based on their credit score.
Applying to nine or ten loan lenders could lower your credit score, thus increase your loan interest rate. Ideally, you want to apply to three or four private loans. Also, consider using a co-signer with good credit to get more favorable loan terms. Hopefully, now you can make more informed decisions regarding your private loan.
Friday, May 16, 2008
Tips on Getting Private Student Loans
Sunday, May 11, 2008
Overview of Student Loans
When you're trying to pay for college, it's nice to turn to a wealthy uncle for a little financial assistance. No one is happier to help you pay for your higher education than Uncle Sam and the federal government.
You can tell a lot about a society by how much it values education. With its vast network of public and private universities, America is a world-leader in education.
Our emphasis on higher learning could be attributed to the correlation between education and economic growth. If the U.S. is going to keep its economy running at full speed, it needs an intelligent workforce. Higher education doesn't come cheap, however, so the federal government has created a number of student loan programs.
Perkins loans
Available to undergraduate and graduate students alike, Perkins loans offer the lowest interest rate-currently fixed at 5 percent-and can take up to 10 years to repay. Your school acts as the lender, and the loans are given on a first-come, first-served basis.
It's a particularly attractive loan for people in the military, law enforcement, certain teaching positions, and non-profit jobs. If you pursue a career in these public service fields, the government may discharge your loan.
Stafford loans
Stafford Loans are provided to undergraduates and graduate students who are enrolled in school at least half-time. Unlike Perkins loans, the government will partially subsidize the money based on a student's level of financial need. Uncle Sam will pay the interest during school years, but the student must begin repaying the loan six months after graduation. In the unsubsidized loan, a student loses his six-month grace period.
Loans are made available directly from the government to colleges or financial institutions. Current rates for Stafford loans are capped at 6.8 percent. Terms of repayment range from 10 to 25 years on both the subsidized and unsubsidized loans.
PLUS loans
Like the Stafford Loans, PLUS loans are granted to undergraduates and graduates who are enrolled at least half-time. With PLUS Loans, the interest rates are variable, but they do have a cap. Loans distributed directly by the government are capped at 7.9 percent, and those distributed through a school or a lender are capped at 8.5 percent. There's also a fee associated with the PLUS loans. Repayment terms are 10 years, and you must begin within 60 days after the final loan is disbursed.
To obtain any of these loans, a student first needs to apply for the Free Application for Federal Student Aid, or FAFSA.
Even though the government values education, it can't give a free ride to everyone. The loan programs are based on a student's financial need, which may be the cause for the wide number of programs. If you're confused, consult with a financial aid counselor or a loan officer from a lending institution, and you'll find out where you fall in the student loan spectrum.
