How to Maintain Control Over Student Loans
One of our neighbor’s daughters, Annie, is about to enroll in a college that doesn’t provide student loans because they think they are bad.!! I can support that college’s decision, but it regrettably forces students who need loans to get them through private sources rather than through FedLoans. For a number of reasons, this puts the college students at serious risk. I’ll start by discussing private loans.
Private Student Loans (PSL)
According to Student Loan Borrower Assistance (dot) org, “In theory, private student loans are used to bridge the gap between the amount of federal aid that is available and the amount that families and students can afford to pay for college expenses on their own. Unfortunately, many borrowers actually opt to take out these more expensive loans before exploring all of their options for federal student aid.” PSLs lack the more affordable, fixed rates, and flexible repayment options that federal loans have. Prior to considering a private student loan, prospective borrowers should exhaust all federal grant and loan options.
Therefore, by not offering federal student aid options to their students, Annie’s college is depriving their students of an accessible means of obtaining funding for their education. PSLs should only be taken as a LAST RESORT, only after all other options for scholarships, grants, and federal loans are taken.
There is no “in school” deferment on interest for private loans, so interest will start to accrue as soon as you take them out. In other words, if you don’t start making payments right away, the amount you borrow today will increase while you’re in school and you’ll owe much more when you graduate. When people receive their bills with all the amortized interest added to these annoying loans after graduation, they often experience sticker shock.
The good news about PSLs is that they are handled similarly to other credit card debt outside of bankruptcy. This indicates that the debtor’s creditors have a finite window of opportunity to recoup their losses, also known as the Statute of Limitations (SOL). In California, creditors have four (4) years to collect on a debt under a written contract and six (6) years if the contract is a promissory note. Each state has its own SOL laws.
Federal Student Loans (FSL)
Depending on the course of study, the institution, and the options available based on credit worthiness, there are various types of federal student loans. When interest starts to accumulate is the most crucial concept to comprehend.
Subsidized SLs are the absolute BEST option for your education financing because these loans are (1) interest FREE while you’re in school; and (2) repayment does not begin until six (6) months following your last day of attendance at school. Unsubsidized SLs, on the other hand, start to accrue interest during the academic year, just like private loans.
You’ve probably already heard of the various SL repayment options. But only federal student loans—not private ones—can be paid off with payment plans like graduated, extended, income-based, or income-contingent repayment.
Maintain Control Over Student Loans by:
Determine the course you want to take in life first, and then decide if you even need a college degree to accomplish your objectives. College dropouts have been some of history’s greatest leaders and achievers!
1. First, utilize all other student aid options, such as scholarships, grants, and 529 savings plans.
2. WORK! I, like my parents, probably worked a job while going to college. My husband worked multiple jobs over the summer to save money for his tuition the following year while taking no loans for his education. You should get used to working hard for what you want because hard work always pays off.
3. Take federal student loans with subsidies first if you must borrow money for school. Remember that these loans have no interest while you’re in school and won’t start accruing until six months after you graduate. Take a federal unsubsidized next, then a private loan. TAKE OUT ONLY WHAT YOU NEED, NOT THE MAXIMUM ADVERTISED.
4. You’ll have six months after graduating to consolidate your federal student loans and choose a payment schedule that you can afford. You can never convert a private student loan into a federal student loan, and given the distinctions made above, why would you want to? ProTip: You can consolidate these loans without the aid of a third party. Just figure it out; you have a college degree. These businesses did not exist “in my day!””
The younger generation is starting to visit my office for advice on student loans because they overspent on credit and enjoyed their college years with nothing to show for it but unemployment and mountains of debt!
