Financial aid for students
Student loans
Shifting gears here, I’m going to go over the cruel and future-Warren-Buffett-Wealth-Dream-Crusher that is: student loans. Digging deeper and deeper into debt is not something people want to do. However, with most college students it has to be done. College education is becoming more and more expensive today. Many families cannot afford the $ 20,000 + a year tuition that most large colleges charge. This is where student loans come in. First, let’s design your options …
There are two main types of student financial aid loans: federal and private. Federal student loans are made directly from the government, generally have lower interest rates, and are given first to those most “in need.” Federal loans are also divided into different categories: Perkins, Direct Subsidized & Unsubsidized, and Direct PLUS.
- Perkins loans are 5% interest and are given to those in HIGH financial need. Those who can receive Perkins loan funds can borrow a maximum of $ 5,500 per year of college study (4 years = $ 22,000).
- Direct subsidized and unsubsidized loans differ in that a student has to show that they NEED to receive the subsidized loan, whereas anyone can receive the unsubsidized version of the loan. The other main difference is that subsidized loans DO NOT increase interest while they are enrolled at least half time in school. Unsubsidized loans increased interest while in school, which the borrower can pay back in school or after graduation. For both loans, the college is the deciding factor in how much money each student receives.
- Direct PLUS loans are taken directly by parents. Since parents generally have better credit than students, more money can be borrowed using this type of loan. ONLY DEPENDENT students can receive funds from a Direct PLUS loan.
Private loans, on the other hand, have HIGH interest rates, but more money can be borrowed. Financial need is not a determining factor with private loans; however, your cost of attendance cannot be exceeded. During my first year, I didn’t know about federal loans and got a $ 20,000 loan with a 20% APR. Now that may not seem like a lot to many of you, yet one year in school, I had already accumulated an additional $ 1,000 in interest. My take-home message on private loans: Use them as a last resort.
Co-allocation
For many young adults, the joint signature is just another term mom and dad use when talking about finances. However, when college rolls around, students will realize the hassle of co-signing a loan. Let me start by saying that federal loans do NOT require an endorsement. Private loans, on the other hand, require an endorsement. For example, Timmy with no credit goes to college, gets a $ 20,000 loan from a private lender, and needs an endorsement. Well, when mom or dad signs that loan, they keep your credit report until the loan is paid off. With $ 20,000 in debt on their credit, this could limit their ability to obtain future loans for themselves. Student loans are generally not repaid until years and years after graduation, therefore this loan could stick with them for a long time. This is another reason why I highly recommend federal loans over private loans.
Eligibility for financial aid
EVERY student who wants federal financial aid must complete the FAFSA. FAFSA stands for Free Application for Student Aid. What this does is that it determines the financial “need” of each borrower to deliver adequate amounts of money … and no, you can’t lie. The government distributes money only when it is necessary. Without knowing the needs of the borrower, they cannot determine how much money to loan to that student. The FAFSA takes into account family income, wealth, cost of attendance, location, and many other financial factors. Generally, students with wealthy parents receive less financial aid. Plain and simple. After a student completes the FAFSA, it is processed and then given an EFC. The EFC stands for Estimated Family Contribution, in other words, how much Mom and Dad are willing to pay. Now, this is not the amount of money that THEY are willing to pay, this is the amount of money that the government thinks it should pay out of pocket. To determine how much money a student can receive, the university subtracts the COA by the EFC that equals their DEBT. For example, if a college’s COA is approximately $ 10,500 per semester and a family’s EFC is $ 4,500 per semester, the loan amount per semester will be approximately $ 6,000. If mom and dad don’t plan to pay the $ 4,500, the difference can be made up with a parent PLUS loan or a private student loan. The government and its selfishness …
Financial aid repayments
Yes, a good thing can come out of student loans and that is – REFUNDS! Refunds occur when the amount the government reduces down exceeds your tuition for a particular semester. For example, if a student is eligible for $ 10,000 per semester, but only needs $ 6,000 for tuition, the refund will be $ 4,000. This $ 4,000 is normally deposited directly into the student’s or parent’s bank account. The rebate is supposed to be used for books, housing, food, etc. What college student is going to buy books before beer? It’s not every day that you get a ton of money straight out of the box, unless of course you’re a stripper.
I think this pretty much sums up the debt construction process. All in all, student loans aren’t that bad if you’re going to have a way to pay them off after school. Not that it sounds harsh, but, if you are planning to become a citrus grower and get $ 40,000 in loans, I doubt you can pay it back.
Her take-home message of the day: Borrow wisely, spend simply.
FWC