“Student Loans” is not a bad word! Often parents get very worried when they hear this phrase. To them it represents starting out life in debt. However it should really be viewed as creating life opportunities IF it is done carefully and thoughtfully. A study conducted 20 years ago found that over the course of a career, on average a college graduate made $ 1 million dollars more than someone with just a high school diploma. That is how significant a college degree can mean financially and lifestyle wise. Of course while everyone agrees on this significance, there is often a healthy debate on how to go about achieving that degree when it comes to costs. Some people will argue that community or junior college is the best way to go in order to save money. Get your AA (remember the Understanding College page?) degree and then transfer to a 4 year school to get your BA or BS. What I often ask students who are interested in this path is one simple question. “Why don’t you transfer in High School after your Sophomore year to another school?” Often they will respond about how they don’t want to leave their friends, they already know the school and they don’t want to start over at a new school. My response back is of course that is exactly what you will be doing by going to a community college.
So if you want to avoid this experience in college and a student loan can help you do that then why not use that opportunity. Of course some people have no choice but to go to a community college, but if you can avoid it it will only benefit you to go to a 4 year school all four years. Think of all of the social experiences that you would miss out on like living in the dorms, learning to become independent and take care of yourself, meeting people from all over the country or world, making connections with students and professors in your major and the moments that you share with your friends. You can’t put a price tag on the social experiences of going to a 4 year school for all four years and how it shapes you as a person and helps you grow which is a major part of the college experience. Here’s a look at several loan options which may end up as part of your financial aid package.
The Federal Perkins Loan is a loan that must be paid back with interest. This loan comes from the university so it will be paid back directly to them. There is a maximum amount of $5,500 per year for undergraduate students. Loans like this that have a maximum amount are viewed as being safer, because by limiting the amount available people often just borrow what they absolutely need. Next is the Direct Subsidized Loan that must also be repaid with interest, however there is a catch here. The student is not charged interest while they are attending school and for the first 6 months after they leave school. The interest is actually paid by the federal government. If a student applies and goes to graduate school, they can often apply for a deferment that keeps the interest from accumulating. The limit on these loan amounts depends on the students’ year in school, but the range is between $3,500 to $5,500. This type of loan is often viewed as the best loan to get. Then there is the Direct Unsubsidized Loan that must be paid back with interest. On this loan, however there are two basic differences from the subsidized loan. A) the student is responsible for all of the interest that accrues and B) the amount available is between $5,500 to $20,000. As for paying the interest, the student can pay the interest as they go along throughout school or they can have it added to the loan amount once they stop attending school. This type of loan if abused is the kind that can set back students upon graduation because of the wider range available. Now these first three loan types will typically have lower interest rates because they are loans to students or young adults.
The last loan is called the Direct PLUS Loan and this loan is for parents. It must be repaid with interest, it usually has a higher interest rate and the maximum amount is based on whatever cost is left over after all of the other types of financial aid have been offered to the student. This is the loan that usually worries parents the most, because after having already submitted their EFC, they don’t expect to have to come up with a loan as well. Now taking loans is a serious responsibility, but if done properly can take some pressure off of both students and parents. Another plus of taking student loans is that it actually looks good to credit agencies and helps with credit reports. When a student takes out a student loan it demonstrates responsibility by investing in their education, as opposed to taking out a loan to get some new rims or a new paint job on their car! At the end of the day, taking out a student loan and working to pay it off throughout the rest of the school year may let you have the best college experience ever. It is just an individual decision that each student must make.
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***INSIDE SCOOP – So when you receive your financial aid package, most often you will see that Housing & Food is combined as one cost. This implies that you are purchasing the meal plan that the school offers. The reality is that most often, the meal plan is not mandatory! When you remove this cost, it can significantly reduce what you really need to spend on school. My advice is twofold in this situation. 1) Call the school(s) that you are interested in going to and ask them if the meal plan is mandatory. Most will say “no”, while some may say for your “freshman year only”. Then ask how much housing is without the meal plan. Now if you are deciding between a couple of schools, you can do what I advised a student of mine a few years ago to do. She was deciding between school A and B. I had her call both schools, ask about the meal plan and then get the housing cost by itself. I then asked her which school she really wanted to go to. School A’s housing cost was less than school B’s, but she wanted to go to School B more than A. So I had her call school B and tell her what school A was offering for housing and if it was possible for school B to match school A? Guess what, school B actually did better than school A! Now NOTE: THIS WILL NOT ALWAYS WORK, but it is worth a try, especially if you are a student with very good grades. Colleges are always competing with each other for students and they will work hard to get the students that they want, so use that to your advantage! Whatever you do, don’t have your parents call, because that usually never works! There’s the INSIDE SCOOP for you!