The clamor surrounding the current economic crisis and the major shifts in lending has aroused the concerns of many parents, high school seniors, and current college students in the market for educational loans. Many have already experienced the difficulties brought on by fewer lenders, higher interest rates, and more stringent credit qualifications. Some have even speculated that due to these new dynamics, higher education may become more and more difficult to achieve for the low income population as costs of tuition increase and credit becomes scarce.
Dr. Emre Ergungor, a research economist in the Research Department of the Federal Reserve Bank of Cleveland stated in a May 2008 publication, “an estimated fifty-seven lenders have suspended participation in the federal student loan program, and nineteen have suspended private loan programs.”
The bottom line is that lender profitability has decreased significantly because of the present economic upheaval. Thus, causing lender back-outs and fewer loans to students.
The question then becomes: what can be done to protect your opportunity for college?
Educational loans consist of several categories: 1. federal loans to students (Stafford and Perkins loans) 2. federal loans to parents (PLUS), 3. private student loans (private lenders), and 4. consolidation loans (loan package that is made up of multiple loans). It is important to seek out and educate yourself on the different positive and negative aspects of these loans in order to find one that would work best for you and which loan would be the easiest to receive.
The Perkins loan is a loan program that is based upon the individual financial need of the student. This loan is carried through by the school, whereas, the school acts as the lender. The Perkins loan is considered the most advantageous loan to be awarded due to the fixed interest rate of 5 %, and not to mention, the interest is subsidized to the lender. In other words, interest does not accrue until the student begins to pay back the funds, after the nine month grace period. There is a ten year period of time in which the loan is to be repaid, which is standard with most federal loans.
Stafford loans, like their federal loan counterpart, Perkins, are federally backed loans, which brings about more scrutinized qualifications; however, there are significant differences in which these loans are stipulated. For example, some Stafford loans are subsidized and some are not, which means that with any unsubsidized loan, based upon specific provisions, the student is responsible to pay any accrued interest during their active enrollment.
Additionally, Stafford loans are broken down into two categories: Federal Family Education Loan Program (FFELP) and Federal Direct Student Loan Program (FDSLP). Federal Family Education Loan Program are loans that originate from private lenders and are federally insured. The Federal Direct Student Loan Program loans are yielded directly by the United States Department of Education or they are provided and distributed by an intercessor, i.e., Sallie Mae, Student Loan Corp.
(Stafford loans carry a fixed subsidized interest rate of 6.0% and an unsubsidized rate of 6.8%)
PLUS loans (Parent Loans for Undergraduate Students) is a program where parents of the student can take out a loan to supplement any tuition fees that the student’s financial aid does not cover. These loans are provided by private lenders or by the government and are the sole responsibility of the parent.
Private loans through private lenders are simple. Eligibility is based upon your credit. They are not federally backed and most often are more costly than any of the federally backed programs. Their interest rates tend to be varied and higher than federal loans.
Private lenders can be beneficial in their flexibility of payment options, respectively. There is no federal paperwork to worry about, and student or parent borrowers will seek out private lending when federal lending does not cover the total tuition amount.
Consolidation loans are exactly how their titled. They consist of multiple loans consolidated into one larger loan. The time in which consolidation can take place is during the grace-period or when repayment expectations are active. Parent loans and student loans cannot be consolidated as consolidation can only apply to loans awarded to a single borrower.
For more information on educational loans, visit my recommended site: Financial Aid
Due to the overall rising need, financial aid applications have increased significantly this year. This increase will more likely give speed to the depletion of the educational funding pool provided by the U.S. Department of Education.
With this in mind, begin the application process early by filling out the Free Application for Financial Student Aid or FASFA quickly and precisely. Make this a priority. Don’t wait for funds to dry out.
Unfortunately, many students who have been accepted to schools are not enrolling due to a turned-down request for aid, and with great financial need growing within the American middle-class family, college saving funds are becoming less and less.
If going to college is a priority, consider some ways to save. In this day and age, it is not safe to presume that lending pools are abundant. If furthering your education is an important aspiration, find ways to save.
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