5 facts about student loans that you need to know
The majority of students attending college will need to finance at least a portion of the cost required to further their education, most likely through student loans. While taking out a student loan may be a viable solution, there are both benefits and drawbacks of signing on the dotted line.
Here are five things you should know about the who, what, and how much of student loans.
1. Complete the FAFSA–NOW
FAFSA is the FREE Application for Federal Student Aid, and it’s the gateway to all federal financial aid, which also includes student loans. The Education Department offers scholarships, work-study, grants, and loans for eligible students in the amount of $150 billion each year. The only way to see if you qualify is to complete the application. The federal deadline is June 30, 2018, but the sooner you hit the submit button, the better, so don’t procrastinate.
2. Federal loan vs. private loans
Federal student loans often offer lower interest rates, a friendlier repayment schedule, and typically don’t require Mom or Dad to cosign to be your safety net. The income-driven repayment schedule is highly attractive, but if you have trouble making your monthly payments on that entry-level salary, you’ll also have deferment or forbearance options to consider. A private student loan is often used to fund the shortfall left by federal loans. They typically come with a higher interest rate compared to federal loans and your parents will need to cosign on the loan.
3. Parent PLUS loans
Every parent would love to save enough money to fund their child’s education, but if that’s not your reality, you might consider a Parent PLUS loan. This type of loan is available to the biological or adoptive parents of dependent students, and it does require a credit check. They’re not especially cheap, though. In 2017 the interest rate was 6.31%, the highest rate among all federal student loans.
4. Student loan default
Even with the generous repayment options, sometimes borrowers default on their student loan. You should be aware that if you default on your loan, you’ll lose all of the benefits that were so attractive when you applied. That includes deferment, forbearance, and any other repayment options that were offered in the past. You’ll also forfeit any future access to federal education aid while your loan is in default.
Sadly, it doesn’t end there. The lender may also report the loan default to the major credit bureaus so your credit score will take a serious hit and the government has the authority to garnish your wages and claim your annual tax refund. And don’t forget about your cosigner, if you have one. They’ll be subjected to the same actions.
5. Student loan forgiveness
Who doesn’t wish that their debt could just disappear? Sometimes it’s called loan forgiveness and other times it’s referred to as loan discharge or cancellation. They’re all a little bit different, but the result is essentially the same.
Loan forgiveness plans may be available for people in education, public service, healthcare, military and other professions. There are specific requirements that need to be met, and not all loans are eligible for forgiveness.
Student loans may also be discharged for personal reasons, although this is very rare. They include school closings, bankruptcy, disability, identity theft or false certification, unpaid refunds, and fraud.
School loans are an excellent means to help fund your education, but all options are not created equal. If you know the rules and can budget your repayment, it can be a wise investment in your future.