With fewer private loan options, students starting to realize government funds may be the best choice
by Vanessa Brunner, PIC Current Contributor
Student loans are a constant burden for those seeking a higher education. Figuring out which type is best or spending years trying to pay off debt are only a couple of the problems. The endless bureaucratic hassle for fed loans also strikes dread in many students. But things seem to be changing in favor of the government.
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In fact, for years college students and their parents have been relying on credit cards, home equity, and private loans to pay for school. However, the worsening economy has forced many firms, including financial giant Wachovia to leave the private loan business. (Read about Wachovia’s financial woes in a previous post here.)
This means these sources of cash are dwindling. This new credit market is forcing students to think about whether or not a private loan is necessary.
Private lenders who are appealing to college students have made their loan process very easy, which is part of their appeal. Also, financial aid officers will often steer parents and students to these lenders.
Your best bet? Looking into federal loans. While federal loans can be intimidating, they have become more reliable than private loans. Federal loans have helped students pay for higher education since 1950 with the introduction of the G.I. bill. These loans assist over 8 million families a year.
Today, Congress has expanded the federal safety net for these loans. The limit was raised by $2,000 a year on the Stafford loan, the main type of federal loan that is available regardless of family income and credit history.
Congress has also made it easier to apply for the PLUS loan, a federal option for parents. There is no longer any penalty for potential borrowers for missing a mortgage payment. Also, if parents with bad credit are rejected, the amount money available to them through a Stafford loan doubles.
Private lenders often offer a low initial rate, but that gets significantly higher in a few months. Federal rates are locked in place, with the Stafford loan at 6.8% and PLUS at 8%.
Overall, federal loans are a better option – one that requires a little more research and effort, but is well worth it in the end.
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[...] Original post by Vanessa Brunner [...]
[...] Keith Reed wrote an interesting post todayHere’s a quick excerptStudent loans are a constant burden for those seeking a higher education. Figuring out which type is best or spending years trying to pay off debt are only a couple of the problems. The endless bureaucratic hassle for fed loans also … [...]
Parents and students are realizing that federal loans should be their first choice. The U.S. Department of Education has reported that applications are up 16.3% this year over last year at the same time.
But the problem is that even with the $2,000 increase in the Stafford loan amounts, it is still not enough to meet tuition and fees in most schools. This gap is getting harder and harder for families to fill.