Student Loans

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An education loan is another form of financial aid that has to be repaid with interest. Unlike scholarships, which do not have to be repaid.

Education loans are usually, student loans (Stafford and Perkins loans, Subsidize and Unsubsidized), parent loans (plus loans) and private student loans, AKA alternative student loans. Another form of education loan is the consolidation loan which allows borrowers to lump all of their loans into one loan.

The federal government sets the interest rates and associated fee that all lenders can charge for federally guaranteed loans. Fees and rates are the maximum so therefore, a lender can lower them if they choose. To be competitive, a lot of lenders offer different student loan discounts to get new clients/borrowers.

Let's face it, not everyone has the money to pay for college without education financing. For example, two-thirds of 4 year undergraduate students graduate with some debt. According to the National Postsecondary Student Aid Study, the average student loan debt for graduating seniors is about $19,300. Loans include Stafford, Perkins, State, College, and Private loans. The median is about $17,200. A quarter of undergraduate students borrow about $25,000 or more, and one tenth borrows about $ 35,300 or more. On the federal student loan debt, not including the plus loans, about sixty percent or about $17,100. When plus loans is included, the average debt incurred is about $22,000. One of ten parents borrow plus loans for their child's college education, with a total plus loan debt of about $16,400. (WOW!, Take the time to digest what I just said.)

The chart below shows the percentage of students borrowing with total average debt per borrower (plus loans not included) according to the type of educational institution.

College Students Debt After Graduation

Institution Level & Control Percent Borrowing Cumulative Debt
Overall Total (2 and 4 year) 55.5% $15,766
4-year Total 65.6% $19,202
4-year Public 61.7% $17,277
4-year Private Non-Profit 72.8% $21,957
4-year Private For-Profit 87.3% $28,138
2-year Total 37.4% $9,897
2-year Public 33.2% $9,387
2-year Private Non-Profit 69.1% $12,326
2-year Private For-Profit 90.0% $12,107
2-year Total 67.1% $7,271
2-year Public 34.0% $7,243
2-year Private Non-Profit 26.5% $4,854
2-year Private For-Profit 77.3% $7,311

Graduate students and professional ones borrow more that is because the debt for graduate degree could range from $26,000 to $115,000. The table shows the percentage borrowing and the average amount of total debt per borrower for graduating students according to degree program. The table also provides the amounts borrowed for the graduate education and also the totals for undergraduate and graduate education.

Graduate Student Education Debt

All Education Debt Graduate

& Undergrad)

Graduate & Professional Degree Programs Percent Borrowing Cumulative Debt Percent Borrowing Cumulative Debt
Total 60.1% $37,067 70.1% $42,406
Master's Degree 58.4% $26,895 69.3% $32,858
Doctoral Degree 51.0% $49,007 58.3% $53,405
Professional Degree 86.5% $82,688 88.4% $93,134
MBA 53.0% $35,525 63.6% $41,687
MSW 76.5% $27,136 81.0% $37,029
PhD 40.0% $36,917 46.8% $41,540
EdD 53.4% $49,050 65.7% $47,725
Law (LLB or JD) 87.7% $70,933 89.7% $80,754
Medicine 95.0% $113,661 95.0% $125,819

Scholarships, grants, and work study alone will not cover the full cost of your college education. Therefore, students and parents find that they have to look to government and private loans. The federal education loan programs gives lower interest rates and flexibility in repayment plans than other loans, thus making it very attractive to finance your education. You are allowed to deduct up to $2,500 in student loan interest on your income tax. (Ask your accountant about this.)

Stafford loan interest on new loans given after July 2006 is a fixed rate of 6.8%. This rate also applies to while you are in school, the grace and repayment periods. Interest rate on the new plus loans is fixed at 8.5%.

Stafford and plus loans interest rates will change every year based on the last 91 day T-bill auction in May. Currently, interest rates on Stafford loan is at 6.54% while you are in school and during the grace periods and at 7.14% during your repayment periods. Interest rate on the plus loan is at 7.9%. Rates are expected to go up by 0.08% on July 1, 2007 to 6.62%, 7.22% and 8.02%. If students want to lock in their in school rate, they should consolidate their variable rate loans during the first six months after graduation while in the grace period. We have no reasons to believe that interest rates will drop over the next year to wait for you to consolidate. Remember that you can only consolidate your loans ONCE, so shop around for the best rates.

A lot of Student Loan Company will give low interest government and private loans with great repayment terms. We will bring you a list of these student loans lender soon. We are working on a list of education lenders that offer federal and private student loans, tips on how to find and select lenders for loans.

There are some loan forgiveness programs where the borrower's loans are paid off in return for their labor or military service. This can be an easy repayment option for you. For students having a difficult time repaying their education loans, read up on defaulting student loans before you skip a payment. Students can find loan cancellation and discharge forms on the U.S. Department of Education web site.

There are many borrowing options. You can find loan calculators to help you figure out your interest, monthly loan payments, and many tools to compare loan costs.

One can say with certainty that many students are not familiar with debt and loan and therefore will not know how much their loans will cost them in the long run. We hope to help students with tips on figuring out the cost of interest.

The FSA Ombudsman can help if you are in default

Students having problem with federal student loan can contact the FSA Ombudsman at the US Department of Education. The Ombudsman will students resolve any disputes and other problems with their federal student loans. Although the Ombudsman do not have the power to impose a solution, rest assured that the FSA Ombudsman will research your problem impartially and objectively and come up with a fair and reasonable solution. Many students found the FSA Ombudsman to be very helpful in solving disputes with lenders. Contact the FSA Ombudsman at 877-557-2575 or fax 202-275-0549 or by mail at U.S. department of Education, FSA Ombudsman, 830 First Street, NE, Fourth Floor, Washington, DC 20202 or via e-mail at FSAOmbudsmanOffice@ed.gov.

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