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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

Understanding Loans Before You Borrow

Posted by Manuel Fabriquer on Fri, Apr 17, 2015 @ 3:39 PM

Loan Photo WEB

While a college education can be expensive, it is an invaluable resource, helping you excel in your chosen career field and contributing to your all-around personal development. Fortunately, students these days have options for financing their higher education plans. Alongside scholarships, grants, and family contributions, students can choose to take out federal and private loans to help pay for their educational costs. Taking out a loan is a serious consideration, and it is important that you fully understand the facts and obligations associated with loans before borrowing.

Borrowing from the Government

If you plan to take out loans for your college education, federal loans are the way to go. Your university will determine your possible loans in line with information gathered from your FAFSA. With a fixed interest rate on federal loans, you’ll better know how much interest you’ll be paying over the life of the loan. Conversely, private loans have variable interest rates, which can present a financial challenge should the rates rise. As well, federal loans offer repayment options and programs for those who are experiencing financial hardship.

The most common type of federal loan is the Stafford Loan. These loans have yearly and overall borrowing limits, which differ based on what year you are in college, and whether or not you are financially dependent on your parents. Stafford Loans are divided into two types: subsidized and unsubsidized. Subsidized loans, contingent on financial need, do not accrue interest while you are still enrolled in school part-time or greater. Unsubsidized loans do accumulate interest, beginning when the loan is distributed. Unsubsidized loans also have a higher interest rate.

Other federal loans include Perkins Loans and PLUS Loans. Perkins Loans, with an interest rate of 5%, can assist students with up to $5,500 each year. If you’re a dependent student, your parents may qualify to take out a PLUS Loan. This loan is repaid by your parents and also has a fixed interest rate, making it a better alternative to a private loan. While you are enrolled in school, your parents do not need to make payments. A PLUS loan amount cannot exceed the total cost of educational expenses minus a student’s existing financial aid.

Things to Know

While private loans are an option, their variable interest rates and lack of structured repayment should make them your last resort. No matter the loan, it’s important to know that loans taken out in a student’s name are the responsibility of the student. Once you’ve graduated, you will be responsible for repaying your accumulated educational debt.

Fortunately, most federal loans have a grace period. Immediately following graduation, this grace period typically lasts 6 months. During this time, you won’t need to begin making repayments, but on unsubsidized Stafford loans, interest will still accrue. Many students take advantage of this grace period to commit to the job search in earnest. If you don’t find suitable employment or are experiencing financial hardship, there are options for repayment that can take into account your current income. This can temporarily lower your payments so that you can still continue to make them on time. In some circumstances, there are also options for forbearance and deferment, subject to the discretion of your loan servicer. Depending on your career interests, it may be worth investigating loan forgiveness programs, which can result in some reduction in your overall loan amounts.

 For further information on student loans, check out the following resources:

 https://studentloans.gov/myDirectLoan/index.action

 https://studentaid.ed.gov/types/loans

Tags: strategies for college, college planning abc, college planning, college applications, cost of attending college, money for college, Manuel Fabriquer, attending college, Paying for college, cost of college, student loans

New Resource For Addressing Student Loan Complaints

Posted by Manuel Fabriquer on Mon, May 14, 2012 @ 3:56 AM

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Hopefully you will never have to deal with a problem concerning a student loan.  However, knowing where to turn to can be the difference between getting a quick resolution or being frustrated.

For a long time the Department of Education has been the place to help resolve problems with Stafford, Perking, Plus and other federally backed loans. You can reach the federal student aid ombudsman directly at ombudsman.ed.gov.

However, this department did not cover private student loans.  Now for the first time, borrowers with complaints about private student loans have a single place to file them: the Consumer Financial Protection Bureau.

This is good news for private student loan borrowers because until now a borrower would have to search far and wide to figure out which regulatory agency had authority over their lender.

You can get a hold of the Consumer Financial Protection Bureau by going to http://www.consumerfinance.gov/

When it comes to college planning we don't use student loans as a primary tool for financing a college education.  There are many tools and strategies that can be utilized first that can decrease or even eliminate the need for student loans. 

One of the best ways to learn about these strategies is by attending one of my FREE college planning workshops.  Simply register here.

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Tags: college planning, student loans, student loan complaints