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Wednesday, 6 November 2013

Which One Is For You? Student Loans

By Frank Miller


Students and families are often confused with the variety of options available when it comes to financing a college education. There are a myriad of options, from college scholarships and grants to federal and private student loans. As part of the Higher Education Act of 1965, President Lyndon Johnson created this law which was intended "to strengthen the education resources of our college and universities and to provide financial assistance for students in postsecondary and higher education." This increased all sources of federal funding provided to universities and added in grants and other forms of financial aid.

This is when student loan consolidation comes into action for many students. Loans consolidation can significantly reduce the amount of loan taken from private or federal lenders by combining the total amount into one loan which helps the student to pay for only one bill at the end of month. Moreover the interest rate of such a loan is quiet low compared to private student loans which is another fact why they are much more popular among students.

To be eligible for direct student loans, a student needs to attend the school that is participating in the direct loan program. Also, the student must be enrolling for at least on a part-time basis.

The Perkins Loan is another federal loan available to both undergraduate and graduate students offered on the basis of financial need, other aid received and availability of funds at each school. The federal government lends schools funds for distribution to its neediest students. The school, therefore, is the lender, and undergraduates may be awarded up to $4,000/year and graduates may be awarded up to $6,000/year. These loans need to be repaid directly to the school and have a fixed 5% interest rate since the program was started. Students can take advantage of a nine-month grace period and a ten-year repayment term. However, if consolidated with any existing federal student loan, including Stafford or Graduate PLUS Loans, this can extend the repayment term. Consolidation has been mentioned a few times and it's really in the best interest of students to take advantage of this upon graduation. Each federal loan, on its own, has a 10 year repayment term, regardless of total loan debt. Consolidation fixed the interest rate and extends the repayment term, allowing more time to repay an often hefty federal loan debt.

Once approved the lending company will pay all the previous loans taken by the student and the student has only to pay the new loan amount with a lower interest rate in an even longer period of time. These student loan consolidation programs come with various repayment periods which are lower than many other federal loan programs, thus students can use the grace period to further reduce their rate of interest. A major advantage of consolidating your loan is that it gives you time to settle down after your college period, most students can not find a job instantly they leave their college which can be an added pressure on students who already face problems of repaying their loan. Consolidating several loans you can get enough time to think about your career prospective and decide to choose a better paying job than choosing a less attractive job with low pay only to pay for your education loan.

For graduate students who are considered independent or have families of their own to support, or no living parents to assist with educational funding can apply for PLUS loans. PLUS loans are low interest loans for graduate students and parents. These loans are under the same criteria as the Stafford loans, you're required to complete and submit FAFSA and a MPN. Typically direct student loans have a limit on the total amount. Most students manage to get by with loans of $8,000. Direct student loans have a fixed interest rate that is set every July 1st. There is also a loan fee that can be up to 4%. This fee is usually used to offset the cost of the programs or services.




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