Student Loans
Education

Student Loans: Covering the Funding Gaps

College costs looming on the horizon? Thankfully there are more ways than ever to finance you or your child's dream education.

There are two main sources of funds for college bills. Government funding consists of several different types of loans, select grants, and other options like scholarships. Private funding can involve scholarships from individuals, foundations, and more, or loans from private banks and online sources. Additional methods of funding college may include tuition payment plans (spacing out bills over a longer period of time), home equity loans, or liquidation of assets such as 401K plans, stock portfolios, savings and IRAs.

By far the most common method of paying for college involves student loans from either the government or private sources. Scholarships, grants and work-study are fantastic sources of funds, but usually do not cover the full cost of college education. That's where loans come in. Let's take a closer look.

Government Funding:

The main loans offered by the federal government are Stafford Loans, Perkins Loans, and PLUS Loans. Two-thirds of undergraduate students graduate with some debt. According to the National Postsecondary Student Aid Study (NPSAS), the average federal student loan debt among graduating seniors is $19,202 and consists mainly of Stafford and Perkins Loans. These figures increase by about 3% a year. Graduate students borrow even more, ranging from $27,000 to $114,000.

Federal education loans offer lower interest rates and more flexible repayment plans than many private loans. Also, interest on federal loans can be deducted from income tax. Federal loans include:

Stafford Loans: These loans are for both undergrads and graduates, and are long-term. Subsidized loans are awarded based on financial need, and interest is not charged before repayment or during deferment. Unsubsidized loans are based on other qualifications, and interest is charged immediately.

Perkins Loans: These loans are for both undergrads and graduate students, and are based on financial need. This is a low-interest loan and the school contributes to the funds. The amount borrowed is restricted by when you apply, your level of need, and the school's funding level.

PLUS Loans: These loans are for parents. With dependent undergraduate students enrolled at least half-time, parents can borrow based on credit history and other requirements. The limit is equal to cost of attendance minus other financial aid received. Interest is usually low on these loans, but repayment must begin immediately in most cases.

Private Funding:

Private loans are an option to increase funding beyond what is provided by government loans. Private loan terms are based on the source (banks, agencies, online funders) and your credit history.

Private student loans are growing rapidly as college costs increase, and the combination of scholarships and government loans leave many fees to be covered. Some things to consider about private loans before applying:

Max out federal aid first. By applying for federal aid through the Free Application for Federal Student Aid (FAFSA), loans, grants and scholarships can be offered. Check out all these options before considering a private source
Fees charged by lenders may significantly increase the cost of a loan. Even with low-interest loans offered, these loans may be more expensive due to fees.
When comparing loans, remember that quoted interest rates and fees may vary due to your credit history.

In addition to the funding options already mentioned, it's important to consider other avenues that can help bridge the gap in college financing. Work-study programs, for instance, offer a practical way to earn money while studying. These programs not only provide financial relief but also valuable work experience, which can be a significant advantage in the job market post-graduation.

Another aspect to consider is the role of financial planning and counseling. Many colleges offer financial aid counseling to help students and their families understand the various options available and make informed decisions. This guidance can include budgeting for college expenses, understanding the implications of loan repayment, and exploring alternative funding sources.

Furthermore, community college and transfer programs present a cost-effective approach to higher education. Starting at a community college and then transferring to a four-year institution can significantly reduce overall education costs. These programs often have agreements with state universities, ensuring a smooth transition and credit transfer.

Internships and co-op programs are additional valuable resources. While some internships are unpaid, many offer a stipend or a modest salary. Co-op programs, integrated into the curriculum, provide paid work experience relevant to the student’s major, and can substantially offset education costs.

Lastly, exploring scholarships continuously throughout the college journey, not just at the beginning, can uncover new opportunities. Many organizations and companies offer scholarships for upperclassmen, specific majors, or for achievements and projects completed during college.

Navigating college funding requires a multifaceted approach. By combining government and private funding with work-study, internships, transfer programs, and continuous scholarship exploration, students can create a comprehensive plan to manage their college expenses effectively. With proper planning and resource utilization, the dream of higher education can become a financially sustainable reality.

For an extensive list of private loan sources, as well as a comprehensive comparison, follow this link: www.finaid.org/loans/privatestudentloans.phtml.

For additional information on different loans, and an effective introduction to applying for loans, visit: www.salliemae.com/get_student_loan/find_student_loan.