Taking on the High Costs of Higher Education: Evaluating Student Loans
Sharon L. Secor
November 09, 2007
Rising college costs are making it necessary for more college bound students to include student loans in their education financing plans . The majority of students who apply for these loans are not well versed in financial matters, and can find navigating through the many student loan options available to them quite confusing. While college financial aid offices will help the prospective student through the process, students should not depend on others to determine which loans are in their best interests. Also, financial aid offices often recommend a limited selection of student loan products, giving the student a smaller range of options to explore in the search for the best rates and terms. Taking a student loan is a serious financial decision that will have an impact on the student's life for years to come, making it well worth the time and effort it takes to become an informed consumer.
Competition is growing in today's market for those student loan dollars, a fact that a savvy borrower can use to his or her advantage. However, with the growing field of lending options this competition brings, an ill informed or unwary consumer can find themselves paying more than necessary for student loans. While student loans are designed to assist the struggling student financially, companies and financial institutions that provide and service student loans are in business to make a profit, a fact that should be kept in mind while shopping for education financing or student loan consolidation products.
Depending upon your course of study, length of time in school, and the college you choose to attend, college financing needs can be quite substantial, creating a great deal of debt by the time your degree is earned. Some students spend a large portion of their working lives making payments on student loans, as long as twenty-five years or more in some cases. Your choices in student loan financing will follow you for a long while, making it wise to compare options very carefully before making a commitment.
Federal Student Loans: The First Stop for Low Cost Borrowing
Federal student loans are generally less expensive than private educational lending products, so using them first is most often the best financial plan. Comparison shopping is crucial when making your financial plans for higher education, even with federal student loans. While the interest rates for these loans are set at a low, fixed rate by the government, many are financed through private lending institutions that have some flexibility in fees and repayment terms. Many lenders offer discounts, fee waivers, and other promotional perks that can lower the overall costs of the loan, making it worthwhile to shop around for the best possible package .
Subsidized federal loans are among the least costly of options, but the student must meet income eligibility guidelines to qualify for these products. If subsidized federal loans are not an option, the next best choice as far as affordability and favorable terms is the unsubsidized federal loan, available for both student borrowers and parents . Unfortunately, federal student loans have borrowing caps, limiting the total amount of financing a student can obtain. Often, these caps are reached long before the total expenses of student's college career are covered. This leaves many students in search of private student loan funding to bridge the gap.
Private Student Loans: Where Smart Shopping Really Pays Off
Private student loan shopping is a very different prospect, requiring more careful comparison. While subject to federal oversight to some degree, private student loans are not regulated as strictly as federal loans, so differences in the rates, fees, terms, and benefits of loans offered by various companies can be vast. Most private student loans are variable rate products, meaning that the rate of interest adjusts with the market. The majority of private student loans are indexed to either the prime rate or the LIBOR, the interest rate moving up or down with changes in these key rates. Interest rates are also determined for individual borrowers according to credit scores and the college attended. Over the long term, small differences in interest rates can add up to substantial savings, so shopping for the best possible rates can make a big difference in your repayment costs.
Student Loan Consolidation: Savings for The Savvy Loan Consumer
Student loan consolidation is a popular option for the student carrying a variety of loans upon graduation. Federal loans can be consolidated into one loan at a fixed interest rate, often offering significant savings over the combined costs of several federal loan payments. This is especially advantageous to the borrower if consolidation is done during the nine month grace period between graduation and the commencement of monthly payments, before the interest rate on the loan rises from the in school rate.
Private student loan consolidation doesn't carry quite the same level of savings, as combining several of them still leaves the student with a variable rate. However, consolidation does offer the convenience of a single payment every month, and if chosen carefully, can offer a lower rate than the original student loans. Often, as students graduate and begin their working lives, credit scores improve substantially from those held during the college years. If consolidation is done with those improved credit ratings, a lower interest rate can often be obtained. Comparison shopping when considering student loan consolidation is important, as rates and terms vary widely.
With the rising costs of a good education today, financing can be quite a challenge for the average student. However, with good information and planning , today's students can obtain the best student loans to meet their needs, graduating with a manageable level of debt as they embark upon their chosen career path, well equipped to become tomorrows successful professionals.
Competition is growing in today's market for those student loan dollars, a fact that a savvy borrower can use to his or her advantage. However, with the growing field of lending options this competition brings, an ill informed or unwary consumer can find themselves paying more than necessary for student loans. While student loans are designed to assist the struggling student financially, companies and financial institutions that provide and service student loans are in business to make a profit, a fact that should be kept in mind while shopping for education financing or student loan consolidation products.
Depending upon your course of study, length of time in school, and the college you choose to attend, college financing needs can be quite substantial, creating a great deal of debt by the time your degree is earned. Some students spend a large portion of their working lives making payments on student loans, as long as twenty-five years or more in some cases. Your choices in student loan financing will follow you for a long while, making it wise to compare options very carefully before making a commitment.
Federal Student Loans: The First Stop for Low Cost Borrowing
Federal student loans are generally less expensive than private educational lending products, so using them first is most often the best financial plan. Comparison shopping is crucial when making your financial plans for higher education, even with federal student loans. While the interest rates for these loans are set at a low, fixed rate by the government, many are financed through private lending institutions that have some flexibility in fees and repayment terms. Many lenders offer discounts, fee waivers, and other promotional perks that can lower the overall costs of the loan, making it worthwhile to shop around for the best possible package .
Subsidized federal loans are among the least costly of options, but the student must meet income eligibility guidelines to qualify for these products. If subsidized federal loans are not an option, the next best choice as far as affordability and favorable terms is the unsubsidized federal loan, available for both student borrowers and parents . Unfortunately, federal student loans have borrowing caps, limiting the total amount of financing a student can obtain. Often, these caps are reached long before the total expenses of student's college career are covered. This leaves many students in search of private student loan funding to bridge the gap.
Private Student Loans: Where Smart Shopping Really Pays Off
Private student loan shopping is a very different prospect, requiring more careful comparison. While subject to federal oversight to some degree, private student loans are not regulated as strictly as federal loans, so differences in the rates, fees, terms, and benefits of loans offered by various companies can be vast. Most private student loans are variable rate products, meaning that the rate of interest adjusts with the market. The majority of private student loans are indexed to either the prime rate or the LIBOR, the interest rate moving up or down with changes in these key rates. Interest rates are also determined for individual borrowers according to credit scores and the college attended. Over the long term, small differences in interest rates can add up to substantial savings, so shopping for the best possible rates can make a big difference in your repayment costs.
Student Loan Consolidation: Savings for The Savvy Loan Consumer
Student loan consolidation is a popular option for the student carrying a variety of loans upon graduation. Federal loans can be consolidated into one loan at a fixed interest rate, often offering significant savings over the combined costs of several federal loan payments. This is especially advantageous to the borrower if consolidation is done during the nine month grace period between graduation and the commencement of monthly payments, before the interest rate on the loan rises from the in school rate.
Private student loan consolidation doesn't carry quite the same level of savings, as combining several of them still leaves the student with a variable rate. However, consolidation does offer the convenience of a single payment every month, and if chosen carefully, can offer a lower rate than the original student loans. Often, as students graduate and begin their working lives, credit scores improve substantially from those held during the college years. If consolidation is done with those improved credit ratings, a lower interest rate can often be obtained. Comparison shopping when considering student loan consolidation is important, as rates and terms vary widely.
With the rising costs of a good education today, financing can be quite a challenge for the average student. However, with good information and planning , today's students can obtain the best student loans to meet their needs, graduating with a manageable level of debt as they embark upon their chosen career path, well equipped to become tomorrows successful professionals.
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