College - Student Loans
In this article we're going to discuss the topic of student
loans and what a parent needs to be careful about.
Let's face it, sometimes your kid just isn't smart enough or
you're not poor enough to qualify for a scholarship or financial
aid. Yet, when it comes time to pay for your kid's tuition, you
just don't have the money. So what do you do?
In these cases the only recourse, unfortunately, is to apply for
a student loan. Well, before you get yourself in over your head,
there are things you need to know about student loans now so
you're not surprised later on.
Even if you're well off, tuition rates are insane. The average
yearly tuition for college is now around $25,000 a semester, and
that doesn't include if the student decides to live on campus.
That can escalate the cost to close to $40,000 a semester. So
we're talking over $150,000 for a bachelor of arts degree.
That's like buying a small home. And the truth is, next to
buying a home, college tuition will be the biggest expense most
families will have in their lifetime. The problem with student
loans is that if they are not properly planned they can become a
The main problem is that most students don't research the loan
they are applying for before they literally sign their life
away. The biggest mistake a student makes is when going to the
financial aid office of a college they fill out a generic form
for a student loan. Never do this just because it is available.
You have no idea what kind of loan you're filing for. You need
to research where the loan will be coming from and all other
financial institutions to see what the various interest rates
are. The school may be giving you an application for a loan that
will be between 8 and 12% when you can easily get one for as
little as 6%. This will save you a lot of money down the road.
The loans that traditionally have the best interest rates are
the Perkins Loans. These are loans with rates that are set by
the federal government and are currently at 5%. They are
available through your school but usually they will not mention
them unless you ask for them. This should be the first loan you
apply for before going through the more traditional sources.
There are loans that are also designed for certain fields of
study, but again these are usually not mentioned unless you ask
Never take a private loan to fund your college. Those loans
accrue interest from the minute you sign that document. With
loans like a Stafford loan they don't accrue interest until six
months after you have graduated. The government itself pays the
interest until you are out of school. Also, do not take cash
advances as the interest on them is astronomical, usually over
The most important thing to know about any student loan, even
one through the government is that it's a loan, not a grant. You
MUST pay it back and failure to do so can land you into a lot of
trouble. So make sure you have a payment plan worked out so that
you don't end up paying penalties, or worse, end up in jail.