What Freshman and their Parents need to Know about Student Loans
Genevieve Dobson, MBA
Student 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.
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 parent’s 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 ensure 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 personal expenses, transportation and so forth. If the student or parent does not want the additional funds they can reject the fund 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 the 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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