What Freshman and their Parents need to Know
about Student Loans
about Student Loans
Genevieve
Dobson, MBA
Dobson, MBA
Student
Loan Expert and Founder of Degrees of Success
Loan Expert and Founder of Degrees of Success
Freshman
year can be the scariest of times for young adults headed out on their own.
Especially when they have to make their first big decision about debt. Student
loans are now currently over 1.3 Trillion dollars and rising with many
borrowers making poor decisions on how to pay that debt back. Freshman have the
daunting task of deciding how much money to borrow and from where. Their parents, in most cases, must be involved
in this process as well.
year can be the scariest of times for young adults headed out on their own.
Especially when they have to make their first big decision about debt. Student
loans are now currently over 1.3 Trillion dollars and rising with many
borrowers making poor decisions on how to pay that debt back. Freshman have the
daunting task of deciding how much money to borrow and from where. Their parents, in most cases, must be involved
in this process as well.
A
freshman can qualify for up to $5,500 a year assuming they are dependent
(dependent students are under 24 years old who are not married and do not have
children). $3,500 of this amount can be
subsidized loans which are income based loans that do not accrue interest
during half-time or more enrollment or in deferment status. The parents income
must be low enough for the student to qualify for this loan. The remaining amount would be unsubsidized
loans which accrue interest no matter the status. In most cases the $5,500 is
not enough money to cover the cost of tuition which means they would need to
apply for a private loan with a co-signer (parents or grandparents generally)
or their parents would need to apply for a Parent Plus loan. Private loans are
based on credit-worthiness which include credit scores and debt to income
ratios. Some even take into consideration the school attending and the degree
program. Whereas Parent Plus loans simply insure the parent is not delinquent
on any debt but their credit score and debt to income ratio is not a factor.
Current Parent Plus interest rates are 7.6% fixed while Private loan rates vary
depending on the credit factors and are generally varying rate loans based on
Prime or Libor rates. If the parent does
not qualify for the Parent Plus loan the freshman can take out the remaining
amount needed (up to Cost of Attendance) in unsubsidized loans.
freshman can qualify for up to $5,500 a year assuming they are dependent
(dependent students are under 24 years old who are not married and do not have
children). $3,500 of this amount can be
subsidized loans which are income based loans that do not accrue interest
during half-time or more enrollment or in deferment status. The parents income
must be low enough for the student to qualify for this loan. The remaining amount would be unsubsidized
loans which accrue interest no matter the status. In most cases the $5,500 is
not enough money to cover the cost of tuition which means they would need to
apply for a private loan with a co-signer (parents or grandparents generally)
or their parents would need to apply for a Parent Plus loan. Private loans are
based on credit-worthiness which include credit scores and debt to income
ratios. Some even take into consideration the school attending and the degree
program. Whereas Parent Plus loans simply insure the parent is not delinquent
on any debt but their credit score and debt to income ratio is not a factor.
Current Parent Plus interest rates are 7.6% fixed while Private loan rates vary
depending on the credit factors and are generally varying rate loans based on
Prime or Libor rates. If the parent does
not qualify for the Parent Plus loan the freshman can take out the remaining
amount needed (up to Cost of Attendance) in unsubsidized loans.
Whether
the parent decides to take the Private loans or the Parent Plus loans, they are
able to borrow up to the Cost of Attendance (COA). The COA includes the cost of tuition for an
academic year, books, transportation, supplies, room and board and some
personal expenses. The check from the lender goes directly to the school to
cover whatever costs there are with them than the difference can be sent to the
student or to the parent. This money is what is used for the personal expenses,
transportation and so forth. If the
student or parent do not want the additional funds they can reject the funds
and have the extra amount automatically sent back to the lender.
the parent decides to take the Private loans or the Parent Plus loans, they are
able to borrow up to the Cost of Attendance (COA). The COA includes the cost of tuition for an
academic year, books, transportation, supplies, room and board and some
personal expenses. The check from the lender goes directly to the school to
cover whatever costs there are with them than the difference can be sent to the
student or to the parent. This money is what is used for the personal expenses,
transportation and so forth. If the
student or parent do not want the additional funds they can reject the funds
and have the extra amount automatically sent back to the lender.
One
important step to consider when making a decision about student loans is
calculating the long term costs and making a plan of action on how to best
handle the debt. This could include paying the interest that accrues during
school or even trying to get scholarships to offset the amount needed to be
borrowed. Students should keep in mind they will only have a 6 month grace
period after they graduate to pay the debt back so they should plan ahead on
what they will do to ensure that first payment is made on time (or deferred if
necessary). It can be hard to plan so far ahead when it concerns paying back
debt but it can be very beneficial in the long run.
important step to consider when making a decision about student loans is
calculating the long term costs and making a plan of action on how to best
handle the debt. This could include paying the interest that accrues during
school or even trying to get scholarships to offset the amount needed to be
borrowed. Students should keep in mind they will only have a 6 month grace
period after they graduate to pay the debt back so they should plan ahead on
what they will do to ensure that first payment is made on time (or deferred if
necessary). It can be hard to plan so far ahead when it concerns paying back
debt but it can be very beneficial in the long run.
To get professional assistance contact Degrees of Success https://bit.ly/1OlvuvS to ask about their student enrollment services that assist with FAFSA completion, Scholarship applications, Essay editing, Assessment on loan disbursement for accuracy and Analysis of loans to decide which should be utilized (ex. Private vs. Parent Plus).
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