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Who’s Responsible for Repaying Student Loans? (responsibilities and accountability of students vs. parents and types of loans)

Posted by Manuel Fabriquer on Thu, Feb 4, 2016 @ 12:24 AM

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Thanks to the availability of scholarships and loans, college is a dream that is available to many. Both public and private loans help thousands of students each year to attend institutions of higher learning. Before you sign on the dotted line however, you should look deeper into the details of your loan information, to be sure you know the associated responsibilities when it comes to repayment.

Discussion With Parents

When you begin the college application process, it’s a good idea to sit down with your parent or legal guardian and discuss finances. How much are they able/willing to contribute? Will your parents take out their own loans, or will you be responsible for financing your education? Having this conversation from the beginning is imperative, to ensure you are all on the same page when it comes to paying for higher education.

Loan Options To Consider

When possible, look into federal loans before considering private loans. These typically have a lower interest rate, offer more flexible repayment options (including income-based plans), and often do not require a cosigner. Federal loans do not enter repayment until you have graduated or stopped attending school at least half-time. And in many cases, there is a grace period before you must begin repayment.

For Parents

If your parents are eligible, they can take out a Federal Direct PLUS Loan. These loans are the responsibility of the borrower (your parents) and have a fixed interest rate. Your parents will repay these loans, but payments don’t begin until you have completed college. If your parents are found ineligible for a PLUS loan, you may be able to borrow an increased amount through Direct Unsubsidized Loans. As an independent or graduate student, you may be eligible to borrow your own PLUS loans.

For Students

Federal Direct Subsidized and Unsubsidized loans allow you to borrow up to $12500 per academic year. The specific amount is based on your year of study and other factors (including parent PLUS loan eligibility). Subsidized loans are based on financial need, while unsubsidized loans are not. Direct subsidized and unsubsidized loans are taken out by the student, who is responsible for repaying them following departure from university, or failure to attend at least half time.

Perkins loans are a third type of loan you may be eligible for as a student. These are your own responsibility and you can borrow as much as $5500 per year.

Private Loans

If necessary, private loans are available for parent or student borrowers. These often have high interest rates and inflexible repayment terms, and loans may be based on credit and the availability of a cosigner.

How Financial Aid is Determined

To find out your loan eligibility, you and your family must complete your FAFSA as well as apply for financial aid to your prospective colleges. When you’ve been admitted, the school will send you an award letter, detailing the total cost of attendance, any scholarships or grants awarded, and what you have been found eligible to borrow.

Working with College Planning ABC may save you a considerable amount on your university education. Contact us today for more details. 

 

Tags: college planning abc, College Planning News, cost of attending college, Manuel Fabriquer, student loans

Dissecting the Different Types of Federal Student Loans

Posted by Manuel Fabriquer on Tue, Feb 2, 2016 @ 9:59 PM
Student Loans

For most families of college-bound students, higher education presents a significant expense. In this competitive job market however, a college education is a huge, and often necessary asset, and so students and their parents work hard to make it happen. Fortunately, there is an abundance of opportunities when it comes to financing your studies.

Scholarships and grants are the first consideration for up and coming university freshmen. These are monetary gifts from schools, organizations, or the government (as in the case of the Pell Grant) that do not need to be repaid.

Yet after these resources have been exhausted, and your family financial contribution taken into account, you may be found eligible for some federal loans. While these are a useful option for funding your studies, it is important to understand the facts before you borrow. Let’s take a look at the different types of federal loans available.

Loan Basics

There are many benefits to taking out federal loans as opposed to loans from private lenders. Some of the advantages include:

  •  Flexible repayment options including income based or graduated repayment

  • Lower interest rates than private loans

  • In most cases, no cosigner or credit check required

  • Loan repayment does not begin until you’ve graduated or stopped attending at least half-time

You can borrow between $5500 and $12500 each undergraduate year with Direct Subsidized and Unsubsidized loans. How much you can borrow is dependent on specific circumstances such as your year of study. Additionally, you may be eligible for as much as $5500 per year in Perkins Loans.

After completing your FAFSA and submitting a financial aid application to your school, you’ll receive an award letter. This will let you know the total cost of attendance, what you’ve received in the form of gift aid, and what you are eligible to borrow. It’s good to remember that you only should borrow as much as you need. This is often less than the amount your school offers you.

Dissecting the Loans

Stafford Loans are the most well known type of federal student loan. These are split into two types: subsidized and unsubsidized. Subsidized loans depend on your family’s financial situation and are based on need. While you are enrolled in school at least part-time, interest does not build on subsidized loans. Unsubsidized loans come with a higher interest rate, and they start accruing interest from disbursement. Students do not need to demonstrate financial need to receive Unsubsidized loans.

Direct PLUS Loans are a third loan option. These fixed interest rate loans can be taken on by parents of dependent undergraduate students or graduate/professional students. If parents take out the PLUS loan, they will be responsible for its repayment. However, they do not need to make payments until you are finished with school.

Perkins Loans are a fourth type of loan, based on need, and include a 5% interest rate. Perkins Loans may be eligible for loan forgiveness following your graduation from college. Certain public service jobs can help you qualify as well as Peace Corps service and other opportunities. The criteria are fairly specific for loan forgiveness programs, but are worth looking into.

 

More questions about financing college? Get in touch with us now! 

Tags: strategies for college, college planning abc, college planning, college applications, cost of attending college, money for college, Manuel Fabriquer, College Admissions, attending college, cost of college