College Planning and Student Loans: Federal and Private

College Planning and Student Loans: Federal and Private
  • Opening Intro -

    The concept of education being free and equally given to all is exercised only to a certain extent.

    If you are smart, then you know that good education comes at a good price.

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Tuition fees for studying in prestigious colleges costs as much as getting to stay in a Beverly Hills mansion for a weekend. A minority of the extremely rich population does not feel the difference.

But for two thirds of the world, where money is of extreme essence, easily disposable college money is a stressful business. This is where a very friendly help called the student loan comes in. It is assistance given to pay for tuition, university expenses, books and such.

Since it is for students, the interest rate and the repayment schedule is peanuts compared to other loans. Terms and conditions are also easy since students are new at such ventures. In most cases student loans are offered as a package which may also include grants or work opportunities.

Another catch is that while interest for other business ventures are tax deductible, such is not the case for student loans. If we consider the United States there are broadly two types of loans:

1. Federal Loans

These are sponsored by the federal government. A staggering majority of student loans are federal loans since they are less expensive and can be subsidized. This way interest does not get accumulated on the subsidized loan while the student is in school.

Income Based Repayment: This is another option provided by the federal government while giving student loans. The borrowers pay back the loan based on how much they earn and not on how much money is actually owed. This puts everyone on an equal footing as far as repayment is concerned.

Any student is qualified to take a loan in the states. They can borrow same amount of money regardless of the background they come from. Even if there is a credit history. The only students who cannot avail the loans are those who have been convicted or have a drug offense, but that cannot be helped. The amount that students can borrow depends on the level of education they have attained and whether they are independent or dependent.

You can find complete student aid programs and options under our financial guides module:

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2. Private Student Loan

These are state-affiliated nonprofit organizations or institutional loans provided by schools. These loans use different underwriting criteria such as income level, parent’s income level. Private loans are only available once a student has exhausted his maximum borrowing limits on the federal loan.

The binding legal contract between the student and the lender is called the Master Promissory Note, where the student promises to repay the loan. Mostly repayments begin between six to twelve months after a student leaves school.

Federal programs should run below costs because an educated workforce for the society is indispensable. An educated generation lowers the burden on public service, lower unemployment and all the devils in today’s economy.

To lead with examples, STUDENTLOAN.com (https://www.studentloan.com/) provides loans to students and parents with valid information to make informed decisions and is supported by Discover Student loans which is one of the largest student loan providers.

Another example would be the Student Loans Company based in the United Kingdom, (http://www.slc.co.uk/) who provide tuition fees, loans and grants to student studying and living in colleges and universities in England, Northern Ireland, Wales and Scotland.

The whole idea behind taking a student loan is to gain independence. If you can finance your education, there is not much that cannot be achieved.

Sharing this information does not only make the next reader a little more aware, it also strengthens the concept of a brighter and focused goal driven generation.

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