Higher education can be very expensive. Four years of study at a private college comes with an average cost of $32,410. A prohibitive figure for most, therefore funding is more often than not acquired through some sort of student loan arrangement.
Federal vs Private Loans
Student finance options provided by the government are known as federal student loans. As they are taxpayer-subsidized, these loans have lower repayment rates and more forgiving terms than private loans. Federal student loans are offered in two types:
- Direct Subsidized Loans are available to prospective students who can demonstrate financial need and cover interest costs for the duration plus six months post-study
- Direct Unsubsidized Loans are available to any type of student, regardless of financial circumstances, yet all interest charges apply
Federal loans offer flexible repayment terms not available elsewhere, including variable repayment plans that reflect income level, etc.
If the sum of your costs of study exceeds what is available via a federal loan, an alternative route is taking out a private loan from a bank or other lender. Although available to all, eligibility for such loans is contingent on your credit score. If you have a poor or limited credit history, you can apply using a guarantor such as a parent to co-sign on the agreement.
A private loan is sure to come with a higher rate of interest than a federal equivalent. They lack the flexible repayment advantages of the latter and have variable, rather than set repayment rates. Furthermore, private loans are not covered by the Federal Debt Consolidation Loan program.
How to Apply for a Student Loan (Federal)
Check the Loan Eligibility Requirements
The basic needs here are a high school diploma or GED and acceptance or current enrolment for a degree at a university. You must also have a US social security number and be a US citizen or have alternative eligibility. Any uncertainty here can be discussed with the financial aid office at the university at which you intend to study.
Available to students in October of each year, FAFSA, or Free Application for Federal Student Aid, is the rather thorough application form that must be completed to apply for federal financial aid. You’ll need to provide details about your financial situation, history, dependents, and whether you will be receiving any support throughout the duration of your study (i.e., from parents). This latter part is especially important as, if you are granted a loan, the terms will include what is known as an EFC or expected Family Contribution. This determines the sum of the contribution which is expected from your parent/s or guardian/s. This sum is subtracted from the expected cost of study to determine the loan amount that can be applied for.
Scholarships are an option for those who perform particularly well in certain academic or sporting disciplines.
How to Pay Off a Student Loan Debt
Settling federal student loans necessitates a decent comprehension of how they function as well as the pertinent variables, such as interest rate, repayment terms, and duration, which apply to the specific loan one has taken out.
Most federal loans have a grace period where the commencement of repayments is put on hold for a set duration, typically six months following the completion of studies.
Assistance with federal loan repayments can be found through a loan servicer. A loan servicer administrates the processes involved in federal student loans and provides a loan repayment schedule to the borrower. They can offer several services for loan repayment and management, including consolidation and forgiveness programs. This is a free service, and one should be wary of private companies that offer this assistance on a paid-for basis. See the Contact Us page on the Federal Student Aid website for more information.
Assistance with private student loans is not as accessible, yet there are options available to those struggling with repayments.
Refinancing can be used to make the terms of repayment more suitable to your financial circumstances. Refinancing involves moving your debt to a new lender, with the aim of reducing the interest rate on the current loan or extending the repayment term to reduce the cost of instalments. A good credit score is of great benefit here. Some private lenders may offer some flexibility or deferment options, but these will certainly come at a further cost.
Forgiveness Programs and Scams to Avoid
Forgiveness programs for student loans nullify your obligation to the original repayment terms. They’re an option to those who have taken out federal loans and find themselves in financial difficulty that renders them unable to fulfil the loan repayments. Unfortunately, and unsurprisingly, private student loan forgiveness is not readily granted. Typically, private loans can only be wiped clean in instances of death or serious disability.
Federal forgiveness programs are represented as a means to a positive end rather than simply a bail-out. In practice, this means forgiveness is more likely to be granted if the borrower is seeking to progress in a socially valuable career, for example, healthcare or teaching, as Betsy Mayotte points out in an interview for PissedConsumer.com:
“Federal loans are tough. What people have to remember with federal loans is that these debts technically belong to you and me, the US taxpayer. So part of the department of education’s role is to protect our federal physical interest…”
Federal forgiveness schemes can usually see to it that outstanding debt is settled within a reasonable timeframe, yet this will still more likely be over decades rather than years. For a rundown of the types of forgiveness schemes available and eligibility, visit here.
Most scams in this area are recognizable if you are aware of the common schemes. The following should be considered red flags:
- Paid services and arbitrary fees. Be wary of any ‘admin’ fees or upfront payments.
- Gurus or arbitrary authorities. Pay short shrift to self-professed ‘experts’ on the matter. This is a fantasy.
- Unrealistic guarantees. There is no such thing as a guaranteed acceptance for a scholarship, for example.
- Pre-Approved agreements. Again, there’s no such thing. No one who contacts you saying so should be trusted.
- No additional products or services will improve your chances or guarantee success.
No specialist route can lower loan rates, nor can any paid service provide anything that cannot be achieved through your research.
“…there’s not a person or entity on the planet, including me, that can get you a better deal on your student loan, or lower payment, or access to a program that you can’t get yourself easily by doing a little research and working with whomever your loan holder is,” as Betsy Mayotte explains.
Student loans are for many crucial to affording higher education and, as such, a critical investment. Yet, they can so easily become a crippling financial burden that takes years to free oneself from.
Before making such a commitment, be sure to comprehend in full the details of any loan; know what it’s going to cost and how long the responsibility to service it will be. If going down the private loan route, check online customer reviews for complaints about lenders. Use the information to plan ahead and ensure you don’t find yourself in a difficult predicament.