Student Loans
There are more types of student loans
available in financial aid today, to students and parents
than ever before. Financial aid, as the name
suggests, is money that students and their parents get from
scholarships, Federal and private lenders and a few other
sources.
All the sources are solely to aid students in paying
for education.
Fact: Over the past 40 years, just as with
everything else, the cost of education has risen dramatically
and student loans became essential. Average tuition increases
of more than 6% per year are common today. Just as one example,
in 1973 the cost of registration at UCLA (University of
California, Los Angeles) was $208 per quarter. It is now over
$2,300 per quarter.
That ten times increase is not too unusual - many things
cost ten times what they did a few decades ago. Income, on the
other hand, has risen about three times in the same period,
from about $15,000-$30,000 per year to around $39,000-$42,000.
The numbers vary by gender, age and more but as a rough guide,
the lower range ~3:1 ratio is about right.
In the past students could depend almost entirely on
Pell Grants and Stafford Student Loans to
finance their education costs, if not complete living
expenses. Pell Grants are still given, but they're
need-based and represent a small percentage of the education
cost today. Stafford Loans are also need-based, and can
range from 25%-40% of the average cost of financing school.
Perkins Loans are similar, but reserved for the lowest
income families.
Fortunately, PLUS Student
Loans are available, which was not an option 35 years ago.
These are loans to parents, not students, to help pay for the
student's education. The interest rates are average, and there
are certain restrictions and fees, but they often form part of
the total package.
A word to the wise about fees in general. Many loans are
nominally for a specified amount, say $4,000 per year disbursed
in two payments (one per semester). But it's not uncommon for
up to 4% in fees to be deducted from that amount before any
funds are distributed. That 4% on $4,000 equals $160 you never
see, yet have to repay. Be sure to look for low or no-fee
loans.
Though Federal loan programs, like the FFELP (Federal
Family Education Loan Program) and the subsidized Stafford
and others, carry no credit check and low fees and interest is
paid by the government, they are not the only source of
financial aid today.
The average financial aid package today will be a complex
mixture of grants, scholarships (if possible), Federal and
(probably) private loans. Rates range from 5% (Perkins) to the
more common 6.8% or higher. With the recent large increase in
defaults on sub-prime lending (mostly for mortgages), lenders
are going to be more strict than before about credit history
and income.
The best way to get started is to look at tables of the most
common loan programs, what interest rates and fees they carry
along with any eligibility requirements. One excellent site
that summarizes much of that information can be found at
http://www.finaid.org/.
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