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What You Need to Understand About Student Loans
By plrprousers | November 4, 2008
Taking out a loan can be pretty complicated but student loans are probably the most complicated type of loan out there. You will quickly come to understand that there are numerous choices along with fine print that must be read. But studying those options is important in order to make the best long-term choice for education funding. It’s very important that students understand financial options so that they can use this information in the rest of their lives.
One of the most common options is a Stafford loan. Hundreds of thousands of students have used these as a means of partially financing their education and they do have some positive aspects.
The Stafford loan has no pre-payment penalty – you can pay off any remaining balance any time. Just about anyone can take out this loan because no credit check is made. Luckily whilst studying for a degree, there is no need to make any loan repayments as long as at least a half-time status is maintained. When you have finished with your studying, you don’t need to worry about making any re-payments for a period of six months.
Please note that you cannot borrow unlimited amounts of money in one year. Also, though Stafford rates often look attractive relative to ordinary loans, they contain additional charges that can make the cost of borrowing higher. Up to 3% in fees (including a 2% Federal ‘origination fee’ and a 1% Federal default fee) can be applied.
Re-paying a student loan can seem a daunting task however there is the option to pay over a period of 10 years which makes things much easier. You might find this an attractive option because the monthy repayments ar low (in the following example you will see that it’s $116 per month). But the amount of interest accumulated on a 7% loan of $10,000 (and most students borrow more) over 10 years is: $3,933. This means that the interest paid is 39% of the original amount. Definitely, not cheap money.
Though it may involve beginning repayment immediately, many parents attempting to help finance their son or daughter’s education will find it worthwhile to investigate other alternatives. Even students should make an effort to look for other routes, including a combination of grants, scholarships, and conventional loans repaid with money earned from part-time work.
Starting a saving plan as early as possible is always advised as this will come in very useful later on. The risk with all such plans is that inflation, financial crises, and other unpredictable elements can cause that investment to be worth very little by the time it is needed.
Have a look at all the options available to you such as inflation-adjusted hedge funds and ax-free municipal bonds which can help to off-set any of those effects. Don’t get too heavily into credit card debt or payday loans.
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