Prepare For A Loan
by Howard Freedman
Copyright 2019 Financial Aid Consulting. All rights reserved. No portion of this article may be reproduced mechanically, electronically, by photocopying or by any other means without expressed written permission of the author.
Howard can be reached at firstname.lastname@example.org
The following is an excerpt from my book-Making College Happen, The Realities of Coping With College Costs
Regardless of the loan, borrowers should be just as prepared to compare loan costs and features as they were when evaluating colleges. The list need not be complicated as long as it addresses the major factors that impact costs and conveniences.
- Fixed or Variable Interest Rate
- How often it changes
- Origination fees
- Late payment interest and fees
- Grace period before repayment
- Loan deferment, forbearance
- Repayment options
- Loan forgiveness
- Refinancing and Consolidation
- Customer service and support
• Subsidized and Unsubsidized Stafford Loans: Students that complete a FAFSA are eligible for either a Stafford loan regardless of their financial need. •
Perkins Loans: Students that complete a FAFSA are eligible for and demonstrates financial need are eligible for this loan. The government will then pay the interest while the student is in college. The student then pays only 5% interest to the school that begins 9 months after graduation. The government provides colleges with limited Perkins loan funding that they distribute
• Federal Parent PLUS Loans This is the only federal educational loan offered to parents of undergraduate students and to graduate students. PLUS loans allow parents to borrow up to their full unmet need, offer flexible repayment options and forgiveness programs
Private (Alternative Student Loans): These are the non-governmental loans that are offered by financial institutions, They do not provide the forgiveness or relief options as federal loans and are generally more expensive than federal loans. Co-signors should be extremely cautious about co-signing these loans, as the risk of default may be high especially for marginal students or for those that are not pursuing lucrative career paths.
• Home Equity Loans
Home equity can provide an economical way to borrow at a lower interest rate against the value of your home. Before borrowing, parents should consider the total amount to be borrowed for the four years of college for the student and perhaps any siblings. The downside is that you will be paying interest on the entire loan even though you will not need the money all at once.
Home Equity Lines: Home equity can also provide an economical way to borrow at a lower interest rate against the value of your home. The one advantage of a home equity line over a loan is that you can borrow the money as needed and will pay less interest.
• Retirement Savings: You may be able to make an early withdrawal from a 401(k) plan to pay for education but may increase your income and reduce your need-based financial aid for the next academic year. Consult with your accountant and or financial planner for more details.
• College Loans: Some colleges offer specially tailored loans to their students. These loans should be evaluated in regard to their interest, origination fees, and repayment terms in relation to other options.
• Lines of Credit: Some credit card companies and financial institutions offer lines of credit that can be used for educational and other purposes. The advantages of such of such loans are their convenience. The disadvantage is high interest and teaser rates.
• Installment Plans: Many colleges use their own installment payment plans to enable parents to spread a fixed contribution month over a number of months. Check with the college for availability.
Whatever you choose: take your time to understand your options and long-term liabilities
What are some of the consumer publications to better understand credit?
- Consumers Guide to Credit: http://www.federalreserve.gov/creditcard/
- Consumer Information About Money and Credit: http://www.consumer.ftc.gov/topics/money-credit
- Cosigning a Loan: http://www.consumer.ftc.gov/articles/0215-co-signing-loan
- Truth In Lending Act: http://www.fdic.gov/regulations/laws/rules/6500-200.html#fdic6500101#fdic6500101