Posts Tagged ‘student loans’
Financial aid is a wonderful resource that you can use to get yourself through school. Whether you absolutely need large loans or choose to apply for small scholarships here and there, it is important to know the major differences between your financial aid options. Here are some key points to keep in mind when comparing financial aid options:
- Scholarships are usually awarded to students based on merit or an application process.
- It is typically a fixed amount of money granted for the student to use towards his or her studies. The student does not need to repay this money.
- Sometimes the funds are given directly to the student to use as he or she deems necessary. Other times – usually when a university provides the scholarship – students can only access funds through their student account. This varies depending on the organization donating the scholarship money.
- Applications vary greatly for each scholarship. Most require written essays and academic transcripts.
- An important element to remember about scholarships is that they are not necessarily based on financial need. Many scholarships are available to students based on their academic performance and application, as opposed to income.
- Some scholarships include perks like membership to the donating organization or post-graduate career assistance.
- Loans come with more responsibility post-graduation than scholarships because students are borrowing money, not being given a fixed amount.
- The amount a student can borrow depends on his or her education level (undergraduate vs. graduate) and dependency status (independent vs. dependent).
- The borrowed money must be repaid after graduation. Interest rates are applied during the repayment period, which often begins six to twelve months after graduation.
- While loans are most frequently subsidized (funded) by the Federal Government, private loans do exist.
- Any student wishing to receive loans from the government must fill out a Master Promissory Note, essentially a legal contract that binds students to repaying their loans.
- Students wishing to obtain loans must fill out the government FAFSA (Free Application for Federal Student Aid) form.
- You can borrow money regardless of your income or your parent’s income; you are only excluded from these government loans if you’ve been unable to pay them back in the past or have been convicted of drug offenses.
According to the Associated Press, half of recent College graduates are either unemployed or underemployed. Young adults have been hit extremely hard by the weak economy and are having a hard time finding work in their field. The “lost generation” as many label them are having a harder and harder time entering the workforce.
With high tuition and student loans, many recent graduates are barely scraping by working lower-wage jobs such as retail clerk, bartender or server. As the loan payments pile up, your local barista might be standing at work wondering why he majored in a liberal arts field.
The prospects for graduates are highly uneven depending on what field they studied in school. There are significantly more opportunities in the sciences, education and health fields, while those who studied arts and humanities are finding opportunities scarce.
The median income for those with bachelor’s degrees is down from where it was in 2000. Another bad sign is that projections are showing that many of the futures jobs will be in low-skilled fields.
Harvard economist Richard Freeman notes, “you can make more money on average if you go to college, but it’s not true for everybody. If you’re not sure what you’re going to be doing, it probably bodes well to take some job, if you can get one, and get a sense first of what you want from college.”
According to Andrew Sum, director of the Center for Labor Market Studies at Northeastern University, “simply put, we’re failing kids coming out of college. We’re going to need a lot better job growth and connections to the labor market, otherwise college debt will grow.”
The AP states “About 1.5 million, or 53.6 percent, of bachelor’s degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years. In 2000, the share was at a low of 41 percent, before the dot-com bust erased job gains for college graduates in the telecommunications and IT fields.”
This is why it is so important to search for as many scholarships as possible to make college as affordable as possible!
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As a high school junior or senior, you’ve probably heard a lot of talk about “financial aid” and “student loans.” Your counselor is on your back about filling out a FAFSA, your parents are asking about interest rates, and all the fancy paperwork with charts and numbers about loans and grants and whatnot makes no sense to you.
It’s no surprise that you aren’t familiar with a lot of the terms being thrown around. As a high school student, you probably don’t have any loans yet. You likely don’t have a credit card yet. You may not even have a checking account or bills to pay. To save you from having to smile and nod through conversations about paying for college, here is a cheat sheet of the most common financial aid terms you need to know.
Financial Aid: Money the government lets you borrow for college if it’s determined your family is unable to afford it on their own. Need is based on your family’s income.
Interest Rate: The cost of borrowing money, expressed as a percentage of the total amount owed. This amount is paid back, on top of your total loan amount. The more money you borrow, and the longer you take to pay it off, the most interest you’ll be paying.
Loan: Money you borrow and will pay back with interest.
Stafford Loan: The most common form of student loan.
Subsidized Loan: A loan the government pays interest on while you’re in school. You’ll be responsible for the rest of the interest once you’ve left school.
Unsubsidized Loan: A loan you’ll pay the accumulated interest on once you’ve left school. You’re responsible for all of the interest.
FAFSA: An acronym that stands for Free Application for Federal Student Aid. Think of it as a long job application you and your parents will fill out together, only instead of applying for a job, you’re applying to borrow money from the government to pay for school.
Academic Year: The school year, usually two semesters (Fall and Spring) or three trimesters.
Borrower: This is you. If you’re borrowing the money, you’re the borrower.
Master Promissory Note: A contract that states you’ll pay back the money you borrow.
Award Letter/Award Package: Documents your college will use to outline how much money you’ll receive for that school in loans and scholarships.
Grace Period: A six month period between when you leave college and when your first student loan bill is due. It’s a time to get your living situation and a job in order before you have to start paying money back.
Work Study Program: A program that helps students earn financial funding through a part-time work program at their college.
Default: Defaulting is officially defined as 270 days without making loan payments when you haven’t qualified for deferment.
Deferment: Pausing your student loans for a six month period when you’re incapable of making payments.
The Stafford Loan is the most popular student loan, and possibly the first loan you’ll have. For that reason, you might want to become acquainted with the seemingly invisible green that allows for most Americans to receive higher education.
Do I want a Stafford Loan?
Unless you privately have the funds to pay for college, you want a Stafford Loan. Stafford Loans are government loans with low interest rates. You don’t have to make payments on them until six months after you’ve left college and the payment plans are flexible.
Do I want subsidized or unsubsidized loans?
You want to take subsidized loans first because the government pays the interest on those while you’re in school. You are required to pay all interest on unsubsidized loans.
How do I apply for a Stafford Loan?
By filling out a FAFSA online at www.studentaid.ed.gov., your college will create an “award package” that may include Stafford Loans as well as other loans and scholarships you may be eligible for. You do not have to take all that is awarded to you in your award package; however, you will be responsible for what you do take.
How much money will I get?
There are a variety of factors that determine how much money you will be eligible for, including whether you are a dependent or independent student, your parents’ or your income, the school you’ve applied to, the date you’ve submitted your FAFSA, the amount of student loans you’ve taken out previously, and many more. Your college will determine the amount you’ll receive. While there is a maximum amount of money you can borrow from student loans, certain health professionals such as those pursuing a medical degree, can borrow more.
What do I have to sign?
Before you take out a Stafford Loan, you will be required to sign an MPN- Master Promissory Note. This is essentially a contract that outlines your loan and the amount you’ll be required to pay back with interest. By signing this document, you’re agreeing to pay your student loans, even if you drop out of college, can’t find a job in your field, or were unsatisfied with the education you received.
How do I use the loan?
Your school will use the loan money to pay for your tuition, your dorm room, and your meal plan. You may also ask the school to use it to pay for your textbooks. After several weeks, usually the second or third week of classes, you will be refunded with any amount leftover to use for school supplies and other school-related costs.
When do I pay up?
You will be given a grace period (six months after leaving college) before you’re required to make any payments on a Stafford Loan. You won’t be surprised by this bill, as you will receive in the mail several notices counting down when your first payment will be due. If you’re unable to make payments, you may have the option to defer the loan temporarily (which will accumulate interest) or adjust your payment plan.
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Lenders provide BILLIONS of dollars in private loans to undergraduate students, and yet there has never been much oversight, leaving borrowers (you students) without a reliable resource to seek help when it comes to private student loan lenders.
Many students who take out loans from private lenders don’t realize that once they graduate and have to pay back the loans, have very little wiggle room. A late payment can have disastrous effects on their credit, and lenders have never really had the motivation to respond to borrowers’ concerns before.
But good news: The Consumer Financial Protection Bureau (CFPB) announced on Monday that it has opened a student loan complaint system for issues regarding, you guessed it, private student loans. Now there is a system in place for students to air out their issues with lenders and actually have the resources to do something about it.
While previously, private student loans were overseen by a patchwork of government agencies, there is now one central agency for private student loans within the Consumer Financial Protection Bureau to assist borrowers with private student loan complaints. So, instead of a bunch of decentralized and separate agencies trying to keep track of private student loans, there is now one single federal agency now responsible for watching out for all students and families who choose to borrow private student loans.
Why is this important? Well, unlike federal student loans, private student loans don’t necessarily carry the same consumer protections as federal student loans and borrowers can wind up hurting their financial futures.
According to CFPB, borrowers (you students or recent grads) can file a complaint, and they will then work with your lender to get a response–something that is awfully difficult to get without some backup. Obviously, the new agency can’t just wave a wand and make your debt disappear–that’s not what it’s been created to do–but they can make your voice a lot louder and get the attention of the financial institution.
The Consumer Bureau is dedicated to “gathering facts and providing tools” for students who need to take out private students loans. An online tool you can take advantage of now is the Student Debt Repayment Assistant, to help students understand the labyrinth of student loan repayment options.
Complaints can be filed at the Web site or by calling (855) 411-CFPB toll-free.
And remember, scholarships can be a big help in keeping down the amount of loans you might have to take out.
Do you think this is an effective answer to problems with private student loans? What’s your experience with taking out loans? Leave a comment in the section below!
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