College Education Concerns in the 21st Century
(c) M. Ryder
The credit crunch and debacle on
One of the most surprising results of the turmoil in the lending markets is how students' loan options have diverged from parents'. Here are the key things both should bear in mind:
DEALS FOR STUDENTS. Students should always start with the feds. The first step: filling out the FAFSA form, the Free Application for Federal Student Aid.
All full-time students who complete a FAFSA and a federal loan agreement provided by their school's financial aid office can borrow at least
Low-income students generally qualify for better deals. Some will receive federal Perkins loans, which charge no interest while students are in school and just 5 percent after they leave. And most needy students will receive "subsidized" Stafford loans, which for the academic year starting this September will charge no interest while students are in school and 5.6 percent after they leave.
Need more? Uh-oh! Dropping out of college is usually far more expensive, in the long run, than sticking it out and graduating to qualify for better jobs, so it can pay to borrow a little extra to make it to commencement. The problem is that students who need more than the government will lend have few good choices, says
Charities and colleges. A few charities, such as
Alternative loans. Banks and other lenders have gotten so picky recently that they've been making only private (or "signature") education loans, often at high variable rates, and only to U.S. citizens with good credit scores (typically those with FICO scores of at least 700). That means most students need at least one employed cosigner to promise to repay their private loans. It also means private loan costs will rise when interest rates bounce back up. But borrowers who can convince lenders that they are responsible and capable of repaying, such as
OPTIONS FOR PARENTS. Parents, unfortunately, have to do more legwork, as
Federal loans are no bargain. While students can borrow comparatively small amounts of money cheaply from the feds, parents are offered bigger but more expensive loans. The federally backed parent PLUS loan can cover the student's entire cost of college (less any other financial aid). But PLUS loans can cost as much as 8.5 percent a year plus a fee of 4 percent of the loan amount, for a total annual percentage rate as high as 9.4 percent. Shoppers can find discounts, however. Those who borrow directly from the federal government and make automatic electronic payments are charged just 7.65 percent in interest. (After fees, the APR totals 8.55 percent.) And the eligibility criteria are comparatively forgiving, even for parents who are a little behind on their mortgages.
Nonprofits and colleges.
Banks and private lenders. Many parents are enticed by sub-4 percent private loan interest rates advertised by banks and firms such as
Luckily, several Web tools have emerged to help parents and students find and compare loans. Ranzetta has rated the most popular private loans based on their interest rates and consumer-friendly terms at studentlendinganalytics.com, and SimpleTuition.com lets shoppers compare a range of rates offered by several lenders.
Home equity loans. Troubles in the housing market have given parents with good credit and plenty of equity a chance to take cash out of their homes at near-record-low rates. After Krist shopped around, he realized he couldn't beat a home equity line of credit for a floating rate that started out at about 4 percent. And Krist says he doesn't mind taking on the debt for his daughter. After all, his parents borrowed so that he, too, could graduate debt free.
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- Dreaded Financial Aid Form will be Easier to Fill Out Next Year
- Casting the Widest Possible Net: College Tuition Assistance & Financial Aid
- Serious Tracking to Hunt Down Cheapest Student Loans
- Calculating the Hidden Costs of College
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- Healthcare Giving Students Opportunity to Pay their Way through College
- Students & Professors use Twitter to Communicate Inside & Outside the Classroom
- Budget Cuts Hit Nation's Public Colleges Hard, Even as Demand for Well-educated Workforce Soars
- Women's Colleges have had to Broaden their Appeal and Support
- Secrets to Finding a Student Loan
(c) 2009 U.S. News & World Report