Government student loans play a significant role in providing financial assistance to students who aspire to achieve their academic goals.
Education is a key investment in one’s future, and for many students, financing their education becomes a crucial aspect of pursuing higher studies. With so much confusion these days over which government loans are best and what the difference is, I felt it was time to simplify it for you and create a list along with the specifics on each.
Following are the various types of government student loans available to students in the United States.
Paying for college today can be stressful. Reading all the posts from parents on Facebook underscores the fact that college is expensive and parents are trying to pay for it without borrowing or graduating with massive student loan debt.
Today’s guest post is by Bob Collins, VP of Financial Aid at Western Governors University.
WGU students graduate with half the debt of their peers nationwide
Education is linked to the eradication of poverty and the promotion of prosperity, but evidence that college students graduate with excessive debt continues to pile up year after year. With student interest rates at their highest in the last decade, our current economy serves as a reminder that students should make informed decisions to borrow wisely.
Western Governors University (WGU) was established in 1997 with a mission to expand access to high-quality, online and affordable higher education. WGU serves more than 150,000 students nationwide and has more than 340,000 graduates in all 50 states.
With consumer finances facing further turbulence following the announcement of the August resumption of U.S. student loan repayment, young Americans are bracing themselves for a financial squeeze in advance of the holidays.
With evidence that shoppers are already showing caution – the savings experts at SimplyCodes have put together some practical money advice for young consumers on how to navigate an increasingly compressed disposable income and how to better manage student loan repayments being back on the list of monthly expenses.
I have had some serious conversations recently with a parent and student who applied to college, was accepted, and was shocked at the cost. The parent didn’t want to disappoint her daughter. The daughter wanted desperately to go to an out of state college that would cost over $50,000 per year with no financial aid.
After speaking with the daughter at length, she decided to defer for a year, work, save her money and apply for scholarships. Taking out loan was not appealing to either of them and I completely agreed.
Parents and students should consider college funding even before their student applies to college. The inevitable result is the parents and students borrowing to pay and usually borrowing more than they can repay after graduation.
Many college students will need to work in order to help pay their way through college. As their parents, this is something you should definitely encourage as it will teach them the value of hard work and the importance of paying for one’s way through life.
There are lots of jobs that college students can take on from working fast food to helping out in the college library, and you and your kids have probably already considered them, but there are also some lesser-known options that might be more rewarding in terms of job satisfaction and financial remuneration, so let’s take a look at a few of them right now.
With all the talk of having student loan debt erased, I wonder what are we teaching our children? For students to think it’s perfectly fine to refuse to pay a debt, a debt that paid for their education, something has gone horribly wrong.
I agree. Student debt is crippling this generation of students. But instead of forgiving the debt, wouldn’t it be better to teach these students some basic financial literacy? Where is the disconnect? Did the parents not explain the ramifications of debt? Did the colleges not take the time to discuss repayment amounts and the consequences of borrowing too much to pay for college? I think both are at fault.
With a new school year quickly approaching,
many parents are figuring out how their child is going to afford college.
According to CollegeBoard, the average student budget for the 2019-20 academic
year was $26,590 for students attending a four-year university. This figure
includes the cost of living on campus, which may be required of incoming freshman students.
This means your child’s education could cost
well over six figures. And no parent wants their child to start their adult
life with that amount of debt.
As a parent, you can help guide your child to make smart decisions
that will impact their finances for years to come. This begins with choosing an
affordable school.
There are also other ways to help pay for the
cost of attendance and living expenses. Here’s how to help fund college costs
and ways to borrow wisely.
Apply for financial aid
opportunities before borrowing
Before you or your child
take on debt to pay for college, you should exhaust all other available
resources.
Your child can access financial aid opportunities, like grants, scholarships and work-study programs, by
completing the Free Application for Federal Student Aid (FAFSA).
The FAFSA filing window
is October 1 to June 30 for each upcoming academic year. Keep in mind that some
financial aid is available on a first-come, first-serve basis, and cutoff
deadlines vary by state. Encourage your child to complete their application as
early as possible.
Also explore third-party
scholarship opportunities through your employer, local community organizations and
online databases. Each additional scholarship or grant — even if it is only for
a few hundred dollars — can prevent your child from taking on more student loan
debt.
How to borrow wisely for college
Once your family has explored all financial
aid opportunities and pooled existing resources (e.g. 529 college savings plan
and other family contributions), your child may still need to turn to student
loans.
Whether your child is taking out loans in
their own name or you’re borrowing on their behalf, it’s important that your
family only borrow what is needed to fill the remaining financial gap.
The first way to approach student loans is
through federal loans. Federal loans have more flexibility and have certain
protections and benefits. This is why it’s best to maximize federal loan
opportunities before taking out private loans.
For example, your child can enroll in a
repayment plan that matches their financial situation and may be eligible for
loan forgiveness opportunities.
Your child should borrow funds in this order:
Direct Subsidized Loans.
Subsidized loans typically have the lowest rates, and the government will
cover any interest that accrues while your child is in school.
Direct Unsubsidized Loans.
Unsubsidized loans aren’t need-based, so any student can qualify for them.
However, your child is responsible for the interest that accrues during
school.
Private loans. Your child
will likely need a cosigner to qualify for a private loan. Shop around
with various private lenders to find the lowest rate and best terms for
your credit.
You may also have the option to take out a
federal Parent PLUS loan in your name to help fund your child’s
education.You’ll be solely financially responsible for the loan — not your
child.
Make a debt repayment plan
Student loan borrowers
should always be aware of interest charges that will accrue during school and
after graduation. These charges should be included in their overall financial
plan.
Your child should also start making a debt
repayment plan as soon as possible. Popular student loan repayment methods
include enrolling in an income-driven repayment (IDR) plan or refinancing student loans after graduation to
get a lower interest rate.
When considering refinancing federal loans
into private student loans, it’s important to understand the consequences of
losing out on federal benefits and protections, like loan forgiveness and
forbearance.
The earlier your child plans for their educational costs, the more likely they can save money during their college experience and beyond.
Our guest post today is by Travis Hornsby, CFA, and Founder and CEO of Student Loan Planner. He lives with his wife in St. Louis, MO, where he loves thinking up new student loan repayment strategies and frequenting the best free zoo in America. As one of the nation’s leading student loan experts, he has consulted on $500 million of student debt personally.
Parents want what’s best for their children. I’m sure you do. You want your student to succeed in life and if that path is college, you don’t want them to be saddled with college debt after they graduate. Entering the work force with debt puts strain on your student and their ability to live independently after college.
But with college costs rising it almost seems impossible to
attend without borrowing money to pay for it. At least that’s what you might
think; but with some smart planning and wise financial choices, I t can be done
and here’s how:
Know how much you are willing to pay
Before even starting the college search, you should know how
much you are willing to pay. Set a budget before your student starts looking at
colleges. If you know how much you are willing to pay, you can avoid going
over-budget on a college, even though it’s a college your student wants to
attend.
Have the money talk
After you know what you’re willing to pay, have the “money
talk” with your student. Discuss with them how much you are willing to pay for
college and how much you expect them to contribute. Do not (I repeat do not)
allow them to apply to any colleges beyond your financial reach unless your
student has been working toward and receiving scholarship awards. Do not count
on financial aid or merit aid to fill the gap when planning for college. If
your student applies and is offered admission to a college you cannot afford it
makes for a difficult conversation and a very disappointed student if you cannot
pay for the tuition.
Research individual college statistics
Before applying, research the financial
aid footprint of every single college on the list. How much aid do they
typically give? How much debt does the average student graduate with? Use their
net price calculator and determine what it will cost to attend there before
applying. If your student is offered admission, there will be no surprises and
disappointment if you do your due diligence before the application process
begins. Colleges offering small percentages of financial aid in the form of
scholarships and grant
Think outside the box
There are thousands of colleges in this country. Many
families make the mistake of not researching affordable
colleges before applying. Smaller private universities offer more generous
financial aid packages. Recognizable names and Ivy League colleges are not the
only schools offering a quality education. Don’t assume that a state university
is cheaper than a private college out of state. Look at the numbers, research
colleges, and think outside the box.
Consider community college
Two years at a community
college will save you and your student a substantial amount of money. After
completing the basics at a much lower cost, they can transfer to a four-year college
and graduate. Your student may also choose an associate’s degree in a technical
field and graduate from community college with a skill and a career. In the past,
community college has gotten a bad reputation from parents and students for
being “less than” a “real” college. But smart parents and students know the
education is the same at a much lower cost.
Apply for scholarships
Until your student graduates from college they should be
applying for scholarships. The sooner they begin, the better. There are scholarships
for all ages and if your student accumulates awards all throughout high
school and into college those awards will go a long way to help them graduate
without debt. There are resources to help
you and your student find and apply for scholarships—take advantage of them.
Get good grades
Scholarships and grants are disbursed by colleges based on merit.
Grades are a key factor colleges use to determine merit aid.
They use this aid to entice student applicants to accept their offers of
admission. Putting your student at the top of the applicant pool with good
grades stack the odds of merit aid in your favor. Believe it or not, a great
GPA results in more scholarship money than athletics. Use this to your
advantage.
Graduate in four years or less
You might be surprised to learn that most students take more
than 4 years to graduate from college. On average, a college
degree takes six years. That’s two years more of college costs, not to
mention two years of lost income. Plan to pay for four years and make a plan
for your student to stay on track.
Become a National Merit finalist
Your student doesn’t have to win a National Merit
scholarship to score some generous financial aid. All they have to do is become
a semi-finalist—and with a little study for the PSAT,
it’s entirely possible. Colleges who have money set aside for the finalists
will use merit aid to entice your student to attend: full tuition, room and
board, books and fees, laptops, study abroad and even spending money. They
might also offer automatic entrance into the honors college, the best housing
and priority registration until graduation.
Take AP exams or CLEP tests before college
It’s possible for your student to take AP or CLEP
exams and test out of freshman subjects. Your student could enter college
as a sophomore, cutting a whole year off the degree. For a small test fee, your
student can save thousands of dollars and time by taking advantage of these
tests.
With all these options available, your student does not have
to take on college debt to receive a quality education. With knowledge and hard
work, your student should be able to graduate college debt-free.
Many families are unrealistic about covering the cost of an expensive college education. Many students admitted that paying for the education at a more expensive university would put a financial burden on their families, but they were still willing to risk it based on their perceived value of that education.
“When three generations of a family collaborate to tackle college costs and fail, the results can be catastrophic. Credit profiles are destroyed, homes and retirements are put at risk, and families land in bankruptcy court. Even then, in most cases higher-education loans, which average more than $30,000 per bachelor’s degree recipient, can only be deferred in bankruptcy, not discharged.
What you’re seeing now in the student-loan area is not only the debtor, but the family of the debtor,” said Manhattan bankruptcy lawyer Dave Shaev. “Mom and Dad are usually the co-signers, and sometimes Grandma or Grandpa are having to dive into retirement funds and home equities to try to bail out a daughter or son with student loans, because the jobs they are getting do not allow them to keep up on the payments.”
Being realistic about student debt and earning potential after graduation is an important part of your college decision. Here are some tips to help make that decision:
Research the jobs that
involve your intended major. Don’t limit
yourself to the obvious. You might find a career path that you had not even
considered.
2. Investigate the
earning potential of the career
These figures can be
easily obtained through the Bureau of Labor Statistics projected earnings
charts. Be realistic. You won’t be paid at the top of the scale right after
graduation. Use the lowest percentage for your figures as a conservative
estimate.
3. Learn about loan repayment
If you are borrowing
money to attend college, don’t just assume you will make enough money to pay
back those loans. Research repayment amounts (and monthly payments) to
determine how much of your salary will go towards student
loans.
4. Consider that life is more than dollar signs
If you are making five figures and employed at a job you detest, the money won’t soothe your misery. Being financially secure is everyone’s goal, but sometimes working at a job you love is worth its weight in gold. A career as a teacher can be as rewarding as being a doctor. You know yourself better than anyone else—pursue your passion.
5. The highest priced
education is not always the best
A high-priced higher
education is not always worth the dividend it pays. Investigate the cost of
tuition and weigh that against your future earning potential. It is wise to
consider community college, investigate trade schools, evaluate state college
cost versus that of private universities, and even consider online accredited
learning.
That degree from a
so-called prestigious university might look
great on your wall; but is it worth cost? Be a wise consumer and don’t go into
debt on the promise of a five-figure salary. Study the statistics, put some
thought into the process, and make an informed decision.
